Central banks turn net gold buyers in 2009-CPM Grp
By Frank Tang
NEW YORK, April 27 (Reuters) - Central banks turned to buyers from sellers of gold for the first time in 20 years in 2009, driven by Chinese stockpiling and worries over global currencies, metals research and consultant CPM Group said on Tuesday.
Investment demand in gold is expected to grow further this year, due to safe-haven demand amid economic uncertainty and as the price is seen holding above $1,000 an ounce for the next year or more, the New York-based company said in its Gold Yearbook 2010.
"Gold prices may well remain above $1,000 or $950 for the next year or longer," CPM said.
The annual report said, official gold demand resulted in net buying of 15.1 million ounces (470 tonnes) in 2009, the sector's first net addition since 1988. Central banks rekindled interest in gold as a hedge against potential repercussions after the worst economic crisis since the Great Depression.
"Economic and financial trends, including currency market developments and intractable trade and debt imbalances, have led most central banks to reduce or stop selling gold," the report said.
CPM Group said net official-sector buying included China's disclosure last year that it had secretly raised its gold reserves to 1,054 tonnes, confirming years of speculation it had been buying. [ID:nPEK307477]
Renewed central bank interest could be seen after India bought 200 out of the 403.3 tonnes of gold the International Monetary Fund slated for sale last year. IMF has a further 185.7 tonnes of gold to sell. [ID:nLDE63P2C3]
"It seems most likely that central banks now will remain large net buyers of gold for the foreseeable future, for years to come," the report said.
INVESTORS BUYING TO RISE IN 2010
Mounting fears about the credit crisis in the beginning of 2009 prompted investors to sell gold, but the metal still showed its appeal as a safe haven during a financial crisis.
"Gold investments provided liquidity when there was very little liquidity available in other investments," the report said.
Net private investment dropped to 37 million ounces in 2009, from 41.7 million ounces in 2008. However, CPM Group said it expected investment demand to rise 7.6 percent to 39.8 million ounces in 2010.
"There may not be such sharp, large additions as we saw in previous years, but there are not any reductions in investment to buy physical gold in the form on bullion and bars," Carlos Sanchez, senior precious metals analyst at CPM Group, told Reuters prior to the release of the report.
"Market activities remain high in the futures market," he said, adding that holdings in gold-backed exchange traded funds remained at high levels due to economic worries such as the debt issues currently affecting the euro zone.
Total fabrication demand, including jewelry, dropped 17 percent to 64.5 million ounces in 2009, but is expected to rebound by 3.7 percent to 66.9 million ounces this year.
Looking at supply, the report said mine production rose 2.7 percent to 55.6 million ounces in 2009. CPM forecasts a further 2.8 percent increase in mine production in 2010, followed by another 1.5 percent gain in 2011.
On price outlook, CPM Group said, there are signs that some investors, who had been buying gold based on short-term economic and financial crises in the last several years, are backing away from the gold market.
Earlier in April, London-based metal consultancy GFMS Ltd said gold was near the final stage of its 10-year bull market, because demand, led mainly by gold investment, is bound to fall at some point in the future. [ID:nN14165643]
However, the CPM report said it expected that any pullback in prices should be moderate for the remainder of 2010.
"Whether they continue to rise will depend on whether investors remain sufficiently concerned about economic and financial conditions to continue to buy large enough volumes of gold," the report said. (Reporting by Frank Tang; Editing by Carole Vaporean)
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