GFMS forecasts US$1,000 gold in 2008

London-based precious metal consultant, GFMS, has released an updated version of its latest gold market report, Gold Survey 2007.

The 40-page report examines the most important economic, sociopolitical, and market- specific issues facing the gold market.

Based on market trends during the last third of 2007, GFMS forecasts an increase in investor interest in gold for 2008, which will drive gold prices to the US$1,000-peroz. level.

Last August’s credit markets crisis was considered the main reason for the shift in investment climate.

With the rise in the gold price, GFMS expects jewelry fabrication to fall by 20% in the first half of 2008.

Jewelry fabrication demand was most prominent in the Middle East in 2007, growing by nearly 70 tonnes. The report cites Turkey’s booming local and export sales as being responsible for the high demand.

The jewelry fabrication market had a turbulent year, with demand rising by 44% during the first half and dropping 12% in the second.

The report also examines the 1% decline in global gold mine output, which stood at 2,444 tonnes gold last year, as well as a recent shift in top gold-producing countries. That change has seen South Africa, which had dominated gold production for over 100 years, edged out of the top spot by China.

Another historical event occurred during the third quarter, when average world total cash costs for gold production breached the US$400-per-oz. mark. According to GFMS, a rise in mine development activities among producers, the weak U.S. dollar and higher royalty payments were largely responsible for the rising cost.

In the area of net official sector sales, there was a more than 30% rise over the previous year’s sales to an estimated 488 tonnes gold in 2007.

GFMS suspects that the rise was a byproduct of higher sales by Central Bank Gold Agreement (CBGA) signatories marginally offset by a net decrease in purchases, in aggregate, from countries not involved in the agreement. CBGA signatories’ sales climbed 50% in 2007, for a full-year total of 500 tonnes gold.

GFMS chairman Philip Klapwijk predicts that CBGA signatories will undersell their quotas in 2008.

Another central point of the report was the reduction of outstanding hedge positions by gold producers.

The first half of 2007 saw the largest amount of reductions with three quarters of net de-hedging reductions driven by the elimination of Lihir Gold, Newmont Mining and Gold Fields from the global hedge book. Significant reductions by Barrick Gold and Minas Buenaventura also contributed to the current global hedge book volume of 1,000 tonnes gold.

GFMS expects a slowdown in the pace of de-hedging in 2008.

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Gold supply and demand highlights

Supply:

• Mine production in 2007 fell 1% due to delays in development and expansion projects; output in the first half of 2008 is expected to grow by just over 2%

• Global cash costs rose 24% year-on-year for January-September 2007

• Net official sector gold sales in 2007 rose by 488 tonnes; first half 2008 sales are expected to fall slightly to just over 200 tonnes

• Old scrap supply fell by a fifth to under 900 tonnes gold in 2007; scrap is projected to rise this year by 15% to over 500 tonnes

Demand:

• Jewelry fabrication grew by 5% in 2007 (or 11%, excluding scrap) while other fabrication rose 2%; In 2008, jewelry fabrication demand is expected to fall to almost 1,000 tonnes; other fabrication is expected to follow with a 10% decline

• Producer de-hedging in 2007 rose 14% and is expected to fall to under 100 tonnes gold in the first half of 2008

• Implied net investment stood at 100 tonnes for 2007; in the first half of 2008, it is expected to rise to over 400 tonnes

• Bar hoarding rose 3% in 2007, while coin fabrication fell 3%; world investment (the sum of bar hoarding, coin demand and the implied figure) totalled 465 tonnes gold last year, a 40% drop

— ALL FACTS AND FIGURES FROM GFMS