Gold may peak to $700 in '08 on China demand

Gold prices may peak in the first half of next year driven by rising demand for luxury goods in India and China, according to Westpac Banking Corporation.

Gold for immediate delivery may trade above $700 an ounce at the end of this year, Huw McKay, senior international economist at Sydney-based Westpac, said on May 17. Gold has averaged $659.34 so far this year after reaching a 26-year high of $730.40 last May.

Demand in India, the world's largest buyer of the precious metal, rose by half in the first quarter from a year earlier, while demand in China gained 31 per cent, the London-based World Gold Council said last week. Westpac's McKay expects prices to remain at historically high levels for the next three years.

"The demand for gold is growing" in China, Ian Cockerill, chief executive officer of Gold Fields, said today. "Look at the new found wealth in that country and the burgeoning middle classes and their demand for gold, it has been very, very strong despite high prices."

Gold for immediate delivery rose as much as $2.35, or 0.4 per cent, to $664.10 an ounce, and traded at $662.64 at 11:43am Perth time. It's risen 4.1 per cent so far this year and traded at an 11-month high of $694.25 on April 23. Cockerill was speaking at a two-day gold conference being held from today in Perth by publisher Paydirt Media Pty. The conference is being attended by the world's four largest gold producers, Barrick Gold Corp, Newmont Mining Corp, AngloGold Ashanti and Gold Fields. Westpac's McKay is also attending.

Jewellery purchases, accounting for about 75 per cent of gold demand, jumped 17 per cent to 573 tonnes as consumers grew more comfortable with gold above $650 an ounce, the London-based Gold Council said in a May 16 statement. Demand from India rose to 211 tonnes and Chinese demand rose to 90 tonnes.

"China is a major emerging market, there is tremendous wealth building up amongst the middle class there, as it is in India,'' Gavin Wendt, senior resources analyst at Fat Prophets, said on May 18. "They are spending their money on luxury goods and certainly gold jewellery would be near the top of the list."

The Reserve Bank of India last month forecast economic growth of 8.5 per cent in the year ending March 31. China's economy, which grew 11.1 per cent in the first quarter, is expected to expand 10 per cent this year, according to the IMF.