-- Under current conditions, the year-end $1,600 gold price
forecast by metals consultancy GFMS suddenly becomes a readily
attainable goal, according to the company's chief executive
"I use the analogy of gold as being the canary in the coal
mine, it really is a fierce indicator that something is awry in
the market - something is not working properly," Paul Walker,
GFMS' CEO told Kitco News fresh off the heels of its Gold Survey
GFMS, one of the world's foremost metals consultancy firms,
reiterated its bullish outlook on gold bullion due to a myriad of
economic and political factors. Comex gold futures prices were
trading higher Wednesday morning and hit another fresh all-time
record high of $1,506.20.
Walker said that he has been bullish on gold since 2003 - but
was still cautious observing the market, believing that the
central banks of the world and the fiscal authorities would take
the necessary hard steps sooner rather than later to correct the
me is the unwillingness of the central banks and fiscal
authorities to tackle the problems. The British are one of the
few that have taken a sharp knife to the fiscal side of things
and cut into expenditure programs," Walker told Kitco News.
"Where we find ourselves now is the unbelievable situation
where the IMF comes out and says, 'they don't believe that the US
debt policy is credible or sustainable,' - it is just a
mind-boggling state of affairs," he said.
The International Monetary Fund recently noted that the US
economy "appears sufficiently strong" to withstand greater
austerity measures and tax increases, adding that the benefit of
last year's stimulus package "is likely to be low relative to its
As long as a rising real interest rate environment doesn't
occur, it is bullish for gold, noted Walker.
U.S. Federal Reserve Chairman Ben Bernanke convenes his
first press conference next week and is expected to emphasize he
is serious about keeping interest rates low for an "extended
, some analysts had predicted higher interest rates in the U.S.
Walker said it is all a matter of degree. "If you take it from
the current range of zero to 0.25, I look at this and say, that
is just a laughable number," he said. "For them to put up
interest rates by 25 basis points is completely insufficient and
will remain insufficient until monetary authorities send the
right signals," said Walker.
"If you tell people that you have negative real interest rates
then the incentive is either to spend and then you get to a state
where people get worried about imbalances and move away from
spending and put any spare cash into gold," Walker noted.
Despite the relentless rise in the gold price, the price
sensitive market witnessed a phenomenal physical off take last
year, said Walker.
"We had close to record levels of demand, levels that we last
saw when the gold price was a fifth of what it is today in Indian
rupee terms," said Walker.
The Indian factor was the most surprising element in 2010 for
the CEO. The surge in Indian demand is an indication that the
Indian market feels we are in for a long bull phase in the gold
market, he said.
Walker was not surprised that mine production went up in 2010.
World mine supply posted a solid gain in 2010 said GFMS, with
every major producing region contributing to last year's higher
total. GFMS noted this is the first time this has occurred since
"Our view has always been that in a rising gold price
environment, we have seen rising mine gold production," Walker
Walker said confusion may have taken place on the analytical
and commentary side of the market.
"They don't have day to day details on this and were confusing
declines in for example South African gold mine production - and
thought that if South Africa was seeing a relentless decline in
gold mine production and there is no major new mine coming on
stream the logical conclusion was that mine production was going
to fall," Walker said.
Rather, said Walker, with the rising gold prices the market
has seen an uptake on exploration. "You have seen people re-start
operations - there has been a huge grassroots increase in mine
production globally and often outside of the traditional big
producers," he said.
Mine production generally offers a relatively smooth gold flow
into the market and in turn, no major price fluctuations. "We are
looking at 220-230 tons a month depending on seasonality - that
is a flow that comes out fairly smoothly over the course of the
month," said Walker.
The firm launched its 44th edition of the GFMS Gold Survey
last week. Its findings highlighted that gold investment demand
continued to drive gold prices higher, which rose by close to 26%
The real issue in the gold market is what happens when you see
surges in investment demand or a surge in Indian jewelry demand,
he said. "It can amount to 100 tons (
) in a matter of hours, in the case of Indian demand in a matter
of days," said Walker.
"So where the real price pressure comes from is from those
kinds of flows. If suddenly people get extremely bullish about
gold, you could literally have hundreds of tons of gold demand in
a short space of time and that is what really drives the price,"
By Daniela Cambone of Kitco News