GFMS Sees $700 Gold By Year-End

Gold investors unnerved by the recent downdraft may just want to sit tight.

That's because investment demand could boost bullion prices to over $700 an ounce by year-end, according to the Gold Survey 2006 -- Update 1, published Thursday morning by London-based specialty consulting firm GFMS.

If the authors' predictions prove correct, gold prices will rise about 17% above Wednesday's close of $596.50 an ounce for December-dated futures. It would also place the yellow metal back into territory not seen since last spring, when the spot price hit a 26-year high of $725.25 on May 12.

Contributing factors, the GFMS report asserts, include a "bleak outlook" for the U.S. dollar due to a "problematic U.S. housing market," an "extremely volatile [Middle East] contributing to a general unease," as well as the "perceived threat of global terrorism," which should all contribute gold's allure as a safe haven.

GFMS does, however, caution that a general economic slowdown could hobble any embryonic rally if gold gets caught in a general commodities rout, and with liquidation of long positions and stop-loss selling accelerating sliding prices. The company sees a "full blown exit by investors" as very unlikely.

The exchange-traded funds that hold bullion, streetTRACKS Gold SharesGLD and iShares Comex Gold TrustIAU, would be likely to benefit from increased investment demand, as would gold miners such as Newmont NEM, Barrick ABX and Goldcorp GG.