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MARKETS Fiscal Policies Could Propel Gold Prices Thomson Reuters GFMS recently launched its Gold Survey 2012 - Update 1 at an event in London. The survey provides GFMS' first published estimate of what the fundamentals might look like for calendar 2012 and, with that done, it is of note that the consultancy remains firmly bullish, with the price expected to clear the $1,800/oz mark before year-end. However, it was felt unlikely that 2011's highs of just over $1,900/oz would be surpassed. "I think we're on pretty safe ground say- ing that we've already seen the lows for the year and that firmer prices, particularly toward year-end, are on the cards, but we're also expecting a bumpy ride looking ahead—any intensification of the Eurozone crisis or dashing of hopes for further easing by the Fed and you could easily see the rally derailed for a while," said Philip Klapwijk, gold head of metal analytics, Thomson Reuters GFMS. GFMS believes gold prices will be strongly influenced by governments' mone- tary and fiscal policies, particularly those enacted by the U.S. administration. "We've recently seen how gold can react sharply to any prospect of more quantitative easing in the United States and we're fairly confident that some form of easing is more likely than not in the end; we may have seen periodic items of good news on the U.S. economy but that invariably seems followed by bad, and this is all before a probable slowdown in both European and Chinese economic growth. Neither can we ignore its domestic problem of the fiscal cliff, with all the uncertainty and recessionary potential bound up in that," Klapwijk said. The consultancy notes that looser mon- etary policy is to be expected both in the developed world and in emerging markets, such as China. All of this was ultimately expected to undermine faith in currencies (and in particular the U.S. dollar), stoke inflationary fears, and lead to an extended period of ultra-low interest rates. The sta- tistics in Update 1show World Investment (the sum of all forms of investment) in the second half reaching a record in both ton- nage terms (over 970 metric tons) and in value (an approximate figure $53 billion). One development that lifted investor sentiment was further growth in already ele- vated levels of official sector buying to an estimated first half 2012 figure of just over 270 mt, chiefly as a result of an ongoing desire to diversify foreign reserves away from the U.S. dollar. The consultancy also noted that this buying had been focused on price dips, providing clear support to the market over difficult times in late spring/early sum- mer. Even though such opportunistic buying might reduce somewhat in the second half should the price rally strongly, the consul- tancy still expects a historically high net pur- chase figure of 220 mt and cautions that this figure could easily prove conservative. Elsewhere on the demand side, the consultancy reports that jewelry fabrication in the first half fell by almost 13%, chiefly on account of a poor result in India, where offtake dropped in the face of record local prices, a lack of conviction in future price trends and a slowing economy. As for the second half, global jewelry demand is expected to grow modestly, even in the event of a price rally, partly as that latter move could bring back to life investment- related buying. The consultancy has expressed concern about currently sluggish Indian buying and that Chinese offtake is not as robust as it had once been. Even if fabrication demand underwhelms, its flipside, scrap supply, was not felt likely to rule out any price rally, with second half vol- umes forecast effectively unchanged year-on- year. The chief reasons ascribed for this were price accustomization, a belief among some holders of scrap that yet higher prices were imminent and, perhaps most importantly, a decline in near-market stocks. Other aspects of supply were also not thought obstructive. Mine production, for instance, was forecast to increase in the second half but only by 24 mt and GFMS estimates full year output is now lower than once expected, chiefly as guid- ance on a slew of projects has been marked down. Also of significance was the ongoing absence of producer hedging; Update 1 shows this staying on the demand side in the second half as a modest 12 mt of net de- hedging is forecast, illustrating the extent to which equity investors continue to militate against such activities. The survey can be ordered from Thom- son Reuters GFMS for £250 / US$460 / €350 per copy. Please contact Charles de Meester (Email: charles.demeester@thom- sonreuters.com, Tel: +44 (0)7500 834 954, www.gfms.co.uk). (November 7, 2012) Precious Metals ($/oz) Gold Silver Base Metals ($/mt) Minor Metals ($/mt) Platinum $1,543.00 Lead Palladium Rhodium $1,150.00 Tin Ruthenium $110.00 Zinc $613.00 Nickel $7,654.50 Cobalt $2,203.00 $16,000.00 $1,717.30 Aluminum $1,901.00 Molybdenum $24,500 Euro (€) $31.84 Copper $24,600 U.K. (£) Iron Ore ($/dmt) $20,740.00 Fe CFR China $118.80 South Africa (Rand) $1,906.00 China (¥) Exchange Rates (U.S.$ Equivalent) 1.2086 1.5996 1.0078 1.0436 0.1159 0.1591 Canada ($) Australia ($) Gold and silver prices provided by KITCO Bullion dealers (http://www.kitco.com). Platinum group metals prices provided by Johnson Matthey (http://www.platinum.matthey.com). Non-ferrous base and minor metal prices provided by London Metal Exchange (http://www.lme.co.uk). Iron ore prices provided by Metal Bulletin Iron Ore Index. Currency exchange rates were provided by the GoCurrency.com. 136 E&MJ; • NOVEMBER 2012 www.e-mj.com