Gold to move back toward $1,200 by Summer but clouds are looming further out

GFMS's Neil Meader believes by 2012 we could see gold back below $1,000

GRONINGEN - 

While gold may not yet be out of the woods in the short term, it should be on its way back up to the $1,200 level by the European summer.

"Some people think we may have seen the bottom I still think there is an outside chance that we may not be quite out of the woods yet but we would certainly expect the $1,050 mark to hold if we did see a little retreat," GFMS research director Neil Meader, told Mineweb on the Gold Weekly podcast on Wednesday.

To listen to the full podcast click here.

Speaking before the IMF announced on the market sale of 191.3 tonnes of gold, Meader said there has been a rather interesting response in the physical market to the gold's recent declines.

"When the price went below $1,100 we saw decent demand pick in the Far East, places like Turkey and so forth. At the same time scrap flows eased off quite considerably. So that gave the market quite a firm footing and, I think when you see a good deal of resilience in the market like that it can reassure investors that there is substance to the price."

While he says currency issues certainly had a role to play, as did uncertainty around the Greek situation, there are some important fundamental elements at play as well.

In the Jewellry market, he argues, what happened in the fourth quarter of 2009 was respectable given the prices. Q$ demand was up by 100 odd tones on the first quarter of the year despite prices being on average around $200 higher.

"So," he says, "you can see how a firmer footing for the world economy can underpin jewellery demand; it has come through in a much better shape and, if you think of the value of the purchase, it is going to be a huge increase compared to the first quarter."

 So very much an improvement on the physical side from that trough that we saw in the beginning of the year.

He adds, however that, while the $1,000 level could be considered a floor level in the medium term, if one looks further out, a price retreat could well be on the cards.

"When, if you find the dollar in secular recovery and inflation fears are passed us and equities look a sensible bet and no one is talking about double dips it is difficult to see how the argument for strong investment in gold can be sustained. Certainly, by 2012 you will be looking at prices well below the $1000 mark but I think it is certainly fair to regard $1,000 maybe $1,050 even as the floor for the short to medium term.

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