Rising concerns about Spain's creditworthiness will trigger a fresh wave of interest in gold, spurring investors to buy a record quantity this year, a top precious metals consultancy predicted on Wednesday.
Investors have lost enthusiasm for gold in recent months, as upbeat economic data from the U.S. have helped equities rally and damped hopes of further quantitative easing. The metal last week touched a three-month low of $1,611.80 (U.S.) an ounce and on Wednesday was trading at $1,659.
But Thomson Reuters GFMS said that gold would probably touch its lows for the year in the next few months. In its annual survey of the gold market, the consultancy predicted that gold bullion, which has surged more than 500 per cent in the past decade, would resume its upward trajectory in the second half of this year, hitting a record above $2,000 within the next 12 months.
"Investors are somewhat disinterested in gold, but not disillusioned," said Philip Klapwijk, head of metals analytics at GFMS. He added that the next wave of buying would probably be triggered when the situation in Spain "goes critical" with Spanish 10-year government bonds yielding more than 5 percentage points above German Bunds. This week, Spanish yields touched 6 per cent for the first time since November, 4.3 percentage points above the equivalent German bonds.
Beyond the euro zone, Mr. Klapwijk said that several other factors would rekindle interest in gold. He predicted that the U.S. Federal Reserve would "take action" – potentially with another round of quantitative easing – before the U.S. elections in November; that Chinese monetary policy would be loosened; and that a jump in oil prices could inspire fears of runaway inflation.
Together, these factors will prompt investors to buy nearly 2,000 tonnes, worth more than $100-billion, GFMS predicted, reversing two years of declines in global investment and surpassing 2009's record buying of 1,922 tonnes.
Nonetheless, Mr. Klapwijk said prices were likely to fall below $1,600 in the near term: "I don't think there's going to be a sustainable reversal. But at the moment we could have a rough patch."
He said that demand from India, traditionally the world's largest gold buyer, would be lower than last year on the back of weaker growth and the government's efforts to damp gold imports. Chinese demand would continue to rise, but at a slower pace than last year, with growth in Chinese bar demand slowing from 40 per cent to 20 per cent, and "single-digit" growth in jewellery consumption compared with 13 per cent last year.
Central banks, which last year made their largest purchases of gold in four decades, will continue their buying spree, GFMS predicted. However, the consultancy said the level of purchases could dip to about 400 tonnes from 455 tonnes last year.