GFMS Up The Target

Gold and silver research firm GFMS predicted last July that gold would reach $1,300/oz on investment demand in the second half of last year, although they cautioned that the metal might fall back to $1,100-$1,200 because of investment demand waning. Their prediction was more than met .

Now, they're back with another prediction, for this year. The firm says a do-able price for gold sometime this year is $1,600.

GFMS has released its "Gold Survey 2010 - Update 2", in which the research house highlights the critical role of investment in the gold market last year and forecasts powerful western investment this year, strong enough to more than offset some of the fundamental headwinds that will be generated by higher prices.

The annual average price was 26% higher than in 2009 and a series of record high prices were posted as investment was driven by a raft of influences, most notably initially were European sovereign debt concerns and, arguably, rising concern about fiat currencies in general. GFMS as a house does not subscribe to the view that the major fiat currencies are destined to fall and that all government debt obligations will become worthless. It does note, however, that this view is relatively widespread and is informing gold investment activity, with gold regarded as the best hedge against official policies that are seen as undermining the three major currencies.

The report also points out that last year's trends in scrap supply, jewellery fabrication and bar hoarding demand were actually pretty positive, given the price action that we saw last year....

Jewelry demand has improved, largely as a result of Indians buying, and scrap gold sales fell slightly. Despite these positive factors, though, investment demand is still needed to fill the gap between supply and other forms of demand. That source of demand is likely to be buoyed by impending inflation in the U.S.