Klapwijk Expects Gold to Pass $1,600/oz. This Year

Investment demand for gold will continue to drive prices higher with a breakthrough above $1,600/oz. expected before year-end, said GFMS Chairman Philip Klapwijk on Wednesday while unveiling the consulting group's "Gold Survey 2011" at a luncheon in London.

"The prospects for gold prices this year remain bright," Klapwijk said in prepared remarks. "Investors continue to be concerned about the outlook for inflation, with government in general showing little appetite to tighten monetary policy significantly. And, with the spotlight also shining on the state of government finances, there is every reason to believe that investors will remain focused on the gold market."

He added that growing price acceptance by consumers will help lift jewelry demand and generate only a muted response from scrap. This will raise the support level in the gold market and provide a platform for investors to take gold prices higher, Klapwijk said.

GFMS also rolled out the 44th edition of the annual survey at simultaneous events in Toronto and Johannesburg. Analysts with the group noted that the report highlighted the role of investment last year in driving gold prices up 26%.

"Global investment actually fell compared with 2009, but last year's performance was still comfortably the second highest on record," Klapwijk said.

Analysts noted that the investment flows did not all go in one direction, however. ETF holdings showed their second highest annual gain and combined purchases of bars and coins surged but investor interest in gold futures dipped in 2010.

Other sectors beyond investment also contributed support for higher gold prices, Klapwijk said, noting, "we saw signs of the gold market having adjusted to higher prices. While jewelry demand partially recovered, following 2009's steep losses, scrap supply was little changed even though gold prices posted a series of record highs in 2010."