Gold's dream climb expected to plateau in 2012: Reuters poll

LONDON Tue Jan 25, 2011 4:11pm EST

Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh November 4, 2009. REUTERS/Ajay Verma

Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh November 4, 2009.

Credit: Reuters/Ajay Verma

LONDON (Reuters) - Gold should build on last year's stellar gains in 2011 to hit record highs, boosted by low interest rates, dollar weakness and lingering worry over growth in major economies, a Reuters poll showed on Tuesday.

But prices could plateau in 2012 as the global economy gathers momentum, quantitative easing measures that have flooded the markets with cheap money are reined in and interest rates turn higher, analysts say.

A poll of 65 analysts conducted by Reuters in early January found a median 2011 gold price forecast of $1,450 an ounce, 18 percent higher than 2010's average London Bullion Market Association (LBMA) gold fix of $1,225.60 an ounce.

The forecast is also just above last year's record high of $1,430.95, and clearly outstrips an average forecast of $1,228 an ounce returned by a similar poll conducted last July.

"The same reasons that were behind gold investment in 2010 will also drive prices in 2011," said Bayram Dincer, an analyst at LGT Capital Management in Switzerland.

"You may have some dollar devaluation, and also an expectation that the Federal Reserve won't raise interest rates," he said. "The fact that people will continue to hold gold and further increase investment in gold makes us very bullish for the precious metal."

Historically low interest rates in much of the world have been a major support to gold prices in recent years. Low rates cut the opportunity cost of holding non-interest-bearing gold.

While fiscal deficits and sovereign debt are likely to dog Europe and the United States, rising inflation in fast-growing economies like China, India and Brazil are also likely to lift the metal's allure as hedge against rising prices in those areas, analysts say.

The poll showed analysts expect gold prices to rise throughout the year, from $1,400 an ounce in the first quarter to $1,432 in the second, $1,477 in the third and $1,520 in the final three months of the year.

But in 2012, expectations are tempered, with an average price of $1,420 an ounce predicted.

"We see some weakness emerging in the second half and that is a pattern in 2012 as the global economy returns to health," said London-based Credit Agricole analyst Robin Bhar.

"As all the classic measures of financial health start to normalize, the great trade that we've had in gold will start to unravel, and we will see a risk-on mentality."

SILVER LINING

The same concerns that are seen lifting gold to record highs are set to benefit silver, which is seen averaging $29.83 an ounce this year, up from $20.19 last year. The average 2011 silver forecast returned by the July poll was $19.00.

Silver touched a near 31-year high at $31.22 an ounce earlier in January.

The grey metal, which unlike gold has a large industrial component to its demand base, is also expected to peak in the fourth quarter at $31 an ounce, before easing back in 2012 to around $27.90 an ounce -- still a historically strong level.

A recovery in industrial production is expected to benefit silver, which is widely used in electronics manufacturing.

"China and developed countries (are the main regions driving demand), as silver is used in solar power panels, plasma display panels and information technology," noted Koichi Iwanaga, general manager of commodities at Japan's Sumitomo Corp.

(Additional reporting by Amanda Cooper in London, Rujun Shen in Singapore, Risa Maeda in Tokyo, Frank Tang in New York, Siddesh Mayenkar in Mumbai; Editing by Veronica Brown and Anthony Barker)

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Comments (3)
goldstockbull wrote:
Why on earth would you poll the same “expert analysts” that predicted the silver price only hitting $19 in 2010? They have been so consistently wrong about precious metals that they have lost all credibility.

Many of these same analysts predicted a top to gold at $500, $800, $1,000, etc.

Reuters – you might want to find some more accurate analysts.

Jan 26, 2011 12:10am EST  --  Report as abuse
fuzzywzhe wrote:
I read up to: “as the global economy gathers momentum, quantitative easing measures that have flooded the markets with cheap money are reined in and interest rates turn higher”

The national debt is 14 trillion dollars today.

The total tax revenue for 2009 was 2.1 trillion dollars.

An interest rate of 15%, less than what we had in the early 1980’s that put an end to gold rising, would consume every dime of federal tax revenue, at current debt levels and current federal tax revenue rates.

Interests rates aren’t going up, they can’t.

Who are these idiot analysts?

The United States is already bankrupt. If you think it’s bad now, just wait until the boomers start drawing Social Security. Stick a fork in us, we’re done. There’s no way for the US to service, much less, pay off it’s debt. It’s just going to grow exponentially.

Reuters was wrong about the new economy in 1999, it was wrong about housing bubble in 2005, it was wrong about weapons of mass destruction in Iraq. Reuters is a propaganda source, not a news source. Enjoy your job while it lasts, Jan.

Jan 26, 2011 4:54am EST  --  Report as abuse
Montpessat wrote:
A shallow thinker sitting on a boat while the tide is going out would shout “the mountains are rising” without realizing that he was falling with the water level. The mountain didn’t move an inch. I wish journalists would stop writing about gold rising but rather currencies falling in value. With the size of debt rollovers coming, there is no other choice but more rounds of QE which will keep the currencies (water level) falling. To top it, we have falling house prices and more toxic debt. In order to keep the balance sheets of the big-time holders of these debts from going underwater we need more QE (no choice). What do you think will then happen with the above mentioned observer on the boat and his water level?

Jan 26, 2011 7:28am EST  --  Report as abuse
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