The Hindu Business Line : Gold seen rising later this year

WEAK global economic outlook and expectation of further stock market weakness, especially in the US, in conjunction with a still weak US dollar and low interest rate may provide a framework within which investors could return to gold to drive prices above $350 an ounce, according to the Gold Survey 2003 report published by Gold Fields Mineral Services Ltd (GFMS).

The London-based independent commodity research and consulting company sees investor interest as having been crucial last year.

Had investor interest not picked up and without a hefty cut in producer hedge book, gold prices could have stuck below $300 per ounce, a company official said.

The survey report has attributed much of the rise in investment to political tensions such as Iraq crisis, while economic issues such as stock market falls have been supportive.Commenting on the large cuts in producer hedge books last year that helped support sagging prices in the third quarter, GFMS noted with caution that the price impact of the move was limited as much of the de-hedging was believed to be passive (delivering into contracts rather than actively buying back).

On the supply side, mine production in 2002 fell by a modest 36 tonnes to 2,587 tonnes, the first decline since 1994.

Net official sector sales in 2002 increased by five per cent to 556 tonnes, with heavy selling seen during the fourth quarter when prices reached their high.On the demand side, the report highlighted the 10 per cent year-on-year decline in fabrication demand to 3,175 tonnes mainly due to a 11 per cent fall in jewellery offtake.

However, minor areas of fabrication - dental, electronics, official coins - saw modest gains.

Jewellery fabrication fell 11 per cent to 2,689 tonnes, the lowest level since 1994, following gold price rally and slowing global economic growth, political and economic uncertainties and changing consumer expenditure pattern.

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