Gold near final bull stage; gains possible: GFMS

By Frank Tang

NEW YORK (BestGrowthStock) – Gold is near the final phase of its 10-year bull run, but prices could still climb as high as $1,300 an ounce in 2010 driven by higher investment demand, said Philip Klapwijk, chairman of metals consultancy GFMS Ltd.

The rise of gold prices is not sustainable because jewelry demand has dropped to less than half of total demand, and record investment buying at some point will fall off, Klapwijk told Reuters in an interview before the release of Gold Survey 2010.

“There are pointers to the fact that we are entering the final stages of a bull market,” Klapwijk said.

Bullion has more than quadrupled since 2000 when it was trading at about $250 an ounce. Year to date, it has gained about 5 percent and spot gold is currently fetching about $1,150 an ounce.

“But that doesn’t rule out the potential for some fairly fancy price gains before it reaches a peak in prices. We are actually pretty bullish still in at least the next 6-12 months.”

Klapwijk said the last phase of gold’s bull cycle could last as long as two to three years.

“By the end of this year, we believe prices will be near the $1,300 mark,” he said.

Klapwijk said gold will eventually face strong headwinds, such as the end of governments’ emergency economic stimulus packages. “Investment demand at some point has to falter,” he added.

The worst economic crisis since the Great Depression has led to both a sharp drop in jewelry buying and soaring gold investment demand for wealth protection.

Klapwijk said that gold supply and demand are not currently in a long-term equilibrium and prices at higher levels are not sustainable.

“This is not an healthy underlying market when the traditional mainstay of the gold market on the demand side, jewelry, is reduced to just 40 percent of demand.”

GFMS’ gold survey showed that jewelry demand fell 20 percent to 1,759 tonnes due to weak consumption during a recession.

Jewelry demand, excluding scrap gold, was even weaker, down 25 percent at 1,111 tonnes.

Jewelry consumption is usually the biggest underpinning factor, representing about 70 percent of total gold demand.

“At some point, there will be a resumption of normalcy, and gold is going to look very pricey. You could see some massive volatility and significant swings in prices,” Klapwijk said.

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(Reporting by Frank Tang and Jan Harvey; Reuters Insider interview by Jane Grieve in London; Editing by John Picinich)

Gold near final bull stage; gains possible: GFMS