Gold prices are likely to rally towards the $2,000 per ounce mark in late 2012 driven by resurgence in investment demand as economic challenges continue.
“We could easily see last September’s record high being taken out, and a push on towards $2,000 is definitely on the cards before the year is out, although a clear breach of that mark is arguably a more likely event for the first half of next year,” said Philip Klapwijk, the head of metal analytics at Thomson Reuters GFMS, in the group’s Gold Survey 2012.
However, the report cautioned that gold will likely depreciate in the short term as the euro-zone crisis seems to have abated while expectations have lowered that the U.S. Federal Reserve will initiate another round of quantities easing (QE3).
Gold was trading at $1,656.90 an ounce on Wednesday, which is 14 percent below the record high of $1,922.20 an ounce set in September 2011. Klapwijk said the yellow metal may still fall below $1,550 in the next two months before the trend reverses in the second half of the year.
The report suggested that the turnaround would occur as fears regarding a possible euro-zone sovereign debt default are expected to rise with Spain set to be the new principal area of concern. In addition, the U.S. recovery is expected to begin to falter in the coming months, which will force the Federal Reserve into taking further monetary policy measures, the survey noted.
Thomson Reuters GFMS explained that both developments are expected to lead to a period of further monetary easing beyond just the industrialized world, with China, India and Brazil also forecast to adopt additional loosening strategies.
Klapwijk noted that these factors could lead to higher inflation especially if oil prices rise on worsening tensions between Iran and the U.S.
The report stated that many of the factors expected to fuel investor interest this year were present in 2011 with low or negative real interest rates and shaky equity markets lowering the opportunity cost of holding gold.
Net world investment in gold rose by 15 percent to a record level of just more than $80 billion in 2011. However, world investment in gold declined 7 percent in tonnage terms.