Average gold prices will surge more than 20 percent this year and retain most gains in 2009 as dollar weakness, market turmoil and inflation fears stoke investor interest, a Reuters poll showed on Wednesday.
A global poll of 50 analysts and traders conducted over the past month produced a median price for gold of $850 a troy ounce this year, up from an average of $696.95 recorded in 2007 and 25 percent higher from a similar poll in July 2007. Gold is forecast to average $840.50 in 2009, after prices surged 32 percent in 2007 and 24 percent in 2006.
Spot gold was quoted at around $888.00 an ounce early on Wednesday after hitting a record high of $914 on January 14. Other key metals are also likely to perform strongly, with the average for silver seen rising by 13 percent this year and platinum gaining nearly 17 percent. But palladium is forecast to rise by just 1.9 percent this year and 3.3 percent in 2009.
"The current global economic environment remains bullish for gold, but should ensure that volatile conditions remain," said Walter De Wet, precious metals analyst at Standard Bank. "We see the US economy coming under increased pressure during the first half of 2008. Combined with sovereign and political risk on the rise in certain countries, we should see support for gold in the first half of 2008."
US market turbulence was highlighted when the Federal Reserve stunned markets on Tuesday with a 75-basis-point cut in interest rates to 3.5 percent in an attempt to stave off a recession. Analysts said continued portfolio diversification via commodity investment vehicles were expected to provide support to the metal on the downside.
PRICE DRIVERS: Sentiment was likely to be bullish as gold was expected to gain from worries in other markets, firm crude oil prices and political tensions in several parts of the world. "Fund and speculative buying as a hedge against a weak US dollar and soft equity markets, as well as high oil prices, will be key drivers of gold and precious metal prices in 2008-09," said Patricia Mohr, commodities analyst at the Scotiabank Group.
Analysts said concerns prompted by a global credit market crunch that started in August last year had increased investor uncertainty, lifting gold's role as a safe haven in times of financial, economic and geopolitical stress.
Widespread expectations of further reductions in US interest rates were also expected to support gold, as rate cuts tend to weaken the dollar and prompt investors to look for alternative assets, such as gold, for better returns.
"Elevated levels of investor risk aversion have benefited gold measurably and are likely to continue to provide a strong bid to the bullion market," said James Steel, precious metals analyst at HSBC Bank.
"The inability of the financial markets to function smoothly has increased the demand for safe-haven instruments, most notably gold. The near-term outlook for gold remains positive, based on the economic climate."
SILVER TO TRACK GOLD: The spot silver price average for 2008 is expected to surge 12.9 percent to $15.10 an ounce from an average of $13.37 in 2007. But it is forecast to fall to $14.60 in 2009.
Silver climbed to a 27-year high of $16.58 an ounce this month and was quoted at around $16.00 on Wednesday. "Our overriding belief is that silver will continue to play side-show to gold, and while the metal may appreciate to $18 this year, gold will retain the title of chief gainer," said Edel Tully, metals analyst at Mitsui Global Precious Metals.
"Greater investor participation in commodities, along with a supportive macroeconomic environment fuelling the precious metal group, will be the key ingredients for the white metal to trend higher, but not at meteoric or parabolic levels," she said.
Platinum is forecast to rise 16.8 percent to $1,522.50 an ounce this year before falling to $1,440 in 2009, but will still be much above last year's average of $1,303.64 and the July's forecast of $1,250 for the current year. Spot platinum was last quoted at around $1,552, below this month's record high of $1,590.50 an ounce.
"Regulatory-driven physical demand, a lack of ready substitution in certain applications, a huge reliance on infrastructure-stressed South Africa for primary production and rising investor demand are stressing the residual volume of above ground platinum stock," said Michael Jansen, analyst at J.P. Morgan Securities.
Palladium was predicted to lag behind other metals, with prices seen rising 1.9 percent to $360 an ounce in 2008 and then to $365 in 2009, from an average of 353.41 in 2007. Spot palladium was quoted at $363.50 on Wednesday.