GFMS Sees $700 Gold By Year-End

The GFMS report also predicts jewelry demand will slump 19% to 2,205 tons for the year, as buyers stay home in the wake of extreme volatility and lofty prices. It says that not only price-sensitive markets such as India, which already saw jewelry buying halved in the first half vs. 2005, will be affected, but also the U.S. and Italy, where retail margins are higher.

"Until prices stabilize, we expect jewelry fabrication to remain weak," states Philip Klapwijk, executive chairman of GFMS, in prepared remarks.

Countering the reduced demand, supply of mined gold remained roughly stable, declining less than 2% during the first half of 2006. Lower production in Indonesia and Australia were partially offset by increases in Latin America.

Future supply is likely to pick up as higher metal prices spur the development of new projects. "An abundance of mines under construction," should come on line in the medium term relieving any shortages," according to the report.

GFMS also notes that selling by the "official sector" or central banks, was down 60% during the first six months of the year, and that may accelerate projected fourth-quarter 2006 sales.

That process may already have started with European Central Bank sales last week hitting about 114 million euros, or 7.5 tons, vs. a value of 28 million euros the previous period, as reported here.