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Johannesburg - The first six months of the year witnessed an "impressive surge" in investor activity in precious metals,
precious metals consultancy GFMS said on Thursday.
GFMS, which released its interim report on the gold sector, said this activity reflected in a new all-time nominal record high posted by the gold price in March.
Gold market data published in the report shows a year-on-year swing in the first half from implied net disinvestment to investment confirm the substantial growth in investor interest.
"The turbulent market conditions and intensifying credit crisis in the USA combined with deepening fears about the weakness of the US dollar, soaring oil prices and the increasing possibility of a recession in the world's largest economy pushed investors towards safe-haven assets such as
gold and other precious metals," commented GFMS executive chairperson Philip Klapwijk.
Gold's first half rally was however brought to an end by the massive liquidations of investors' positions during the summer that resulted in the gold price dropping to the mid-US$700s in September, a level last seen almost a year ago, as interest in the precious metal was dented by a recovery in the US dollar and a slump in oil prices.
"To some it appeared that the summer sell-off marked the end of the bull market in gold," noted Klapwijk.
"Given the speed and strength of the recovery in the US dollar and the associated collapse in commodities prices it looked for a while as if events were proving the bears to be correct. However, we were and still remain skeptical that a sustainable recovery in the US dollar is possible while the
United States continues to be so dependent on other countries' savings, especially at a time when the US-centred financial crisis is going from bad to worse," he said.
Looking at prospects for the final third of 2008, GFMS expects that a deepening financial crisis coupled with the US entering a recession (or close to it) will result in a further loosening of US monetary policy at the same time that the country's fiscal deficit is exploding.
This will lead to a reversal of much of the recent recovery in the US dollar, said GFMS.
A weaker dollar, negative real interest rates and turmoil in global financial markets should provide a highly stimulating environment for a rebound in gold investment demand.
GFMS forecast that the return in strength of investors to the buy-side of the market will drive gold prices back well above the US$900 mark during the fourth quarter.
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