Paul Walker, global head of precious metals at GFMS, a research consultancy recently purchased by Thomson Reuters, says strong demand in India supports higher gold prices. Walker says that during a recent trip to India he couldn't get into gold stores in some regions because there were so many customers inside eager to buy the metal. The expert says that India continues to buy on price dips and that there is a lack of scrap gold coming out of the country -- a sign of hoarding. India "can suck in huge amounts of gold in a very short amount of time," he says, estimating that India could import more than 1,000 tons of gold in 2011 -- "a record level at record high prices." For comparison, SPDR Gold Shares ( GLD) holds 1,251 tons. Walker also sees bar hoarding and strong coin demand in China as inflation remains high, interest rates remain negative and investors look for a safe place to invest. He argues that jewelry demand from China and India is actually investment demand. It is less about buying a gold bracelet for a loved one and more about where to stash cash and how to generate the best returns. "The market is moving in relatively unchartered territory," he says.
Bakes Mitchell, vice president of sales at Metals Economics Group, says that the global exploration budget for 2011 could hit $17 billion, a 50% increase over 2010. Half of that budget is for gold at $8.5 billion. Mitchell says if the huge uncertainty continues to support gold prices and the second half of the year stays on its current course, then there could be an additional $4.5-$5 billion worth of financing completed in 2011. Mitchell says that mergers and acquisitions in the gold space will have to continue because the large gold companies need big reserves fast. A gold price correction would likely see "some quick activity," as junior miners get cheaper, Mitchell says.
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