GFMS says jewellery demand remains strong but supply is falling short.

GFMS, a leading economics consultancy in precious metals research, yesterday said the gold price is expected to rise above $2,000 (£1,254) per ounce by early 2013, marking the metal’s decade-long “bull run”.

GFMS head of metals analysis Philip Klapwijk told Reuters that the gold market will hit new highs in the early 2013 following softer demand and a “slackening investment appetite” for bullion.


Klapwijk said that in the “medium term” gold prices are going to go up but said the $2,000 (£1,254) an ounce level being surpassed is “probably looking more like a story for the first half of 2013 than something we will see in the second half of this year."

The market has changed as China and India place less demand on gold compared to 2011, however Klapwijk noted the rise in demand for gold in its sold form rather than being traded as futures.

“It’s curious. If you look at gold investment it’s really quite widespread now,” he explained. “We’re seeing significant demand for gold in bar form and coin form, not just in Europe and America but in Asia, China especially.”

In terms of jewellery demand, Klapwijk explained that this is still a “sizeable factor” in the gold market. “If we look at the jewellery market notwithstanding the strong advance of gold prices, in Asia in particular there has been pretty good jewellery demand.

“We’re seeing strong demand for 22ct gold in India and 24ct gold in China being bought in part as savings.”

With a view to gold mining and supply, Klapwijk says that gold mining is beginning to react to the higher prices with stronger margins for product, but says that mine production is falling short of global demand. However, this is being made up for by scrap supply which is also on the rise.

When questioned whether the gold price will skyrocket in the next year, Klapwijk concluded: “It depends on monetary policy in major economies. If there are currency of inflation worries then gold could go viral.”

Reuters revealed that jewellery buying is the largest single element of gold demand despite gold jewellery fabrication falling 2% in 2011 to 1,973 tonnes, according to GFMS.

The gap between the amount of gold mined and recycled, and the quantity used to fabricate jewellery and other goods, is expected to widen this year according to GFMS.

In July 2011 the gold price peaked at $1,600.40 (£1,004) an ounce as investors worried by the euro zone debt crisis and the threat of a U.S. default bought into the metal.

Watch the video of the GFMS report