Gold to hit $1,850 by Dec 2011: Barclays Capital

Gold prices are likely to hit $1850 an ounce by the end of next year on strong demand from emerging economies and supply side constraints, Paul Horsnell, managing director of Barclays Capital said in a media briefing here today.

Gold will first slide to $1,310-1,325 early next year on profit booking. But, the precious metal will get good buying support from central banks in Asia and West Asia regions, who are looking for opportunities to increase their gold portfolio. Any aim to pick up gold in good volume will raise prices steadily to $1,450 by mid-next year and then the targeted $1,850 towards the end, Horsnell said

Gold surged over 34 per cent since October 1, 2009 and 23 per cent so far this year. Today, spot gold in London was at $1,337.17 an ounce at 1242 GMT, down from $1,343.50 the day before and down from a session high of $1,349.05 as the dollar clawed back gains against the euro.

Talking about India’s central bank, the Reserve Bank of India (RBI), Paul said, “RBI picked up 200 tonnes of gold at the right time last year and is now scouting for opportunities to buy more. The current official gold holding at 557.7 tonnes is just 7.5 per cent of RBI’s asset allocations with nearly nine per cent of growth in the GDP.”

China being the world’s largest gold producer holds 1,054 tonnes equivalent to a paltry 1.6 per cent of the central bank’s total asset portfolios. The country is understandably in the process of raising gold portfolio amicably looking at a double digit growth in the country’s economy.

Apart from that, Asian countries led by Taiwan, Singapore, Indonesia, Sri Lanka, Hong Kong, Mauritius are also eager to raise their gold portfolio. Gold’s appetite was also seen from the West Asian countries that currently have low exposure to gold relative to their overall economies. Hence, the overall demand is likely to remain bullish in the future.

“Against that, scrap recovery in India which is a barometer to consumer confidence, has not happened the way we expected. In turn, demand for fresh metal especially during festivals, rose sharply which is evident from the current enthusiasm among consumers,” said Jonathan Spall, director. Gold is still facing a genuine supply side constraint due to lack of new mine explorations.