Gold Prices Will Not Slip Back to $1,400 per Ounce, CPM Group's Christian Says

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Researched by Industrial Info Resources (Sugar Land, Texas)--Gold prices have passed their cyclical peak and will stay between $1,400 and $1,600 per ounce in 2012, said Jeffrey Christian, managing director of CPM Group, a New York-based commodities consulting company.

"We may already see the peak in gold prices for 2012, and the prices will be lower at yearend than today's levels," Christian said, in a broadcast interview on Bloomberg HT Television. Christian also expects that gold prices will not slip below $1,400 this year.

Interest in gold has surged in the past 10 years, as prices have risen more than sevenfold from just $253 per ounce in 2001 to a peak of nearly $2,000 last year. Gold averaged $1,572 per ounce in 2011, up 27.9% from $1,278.63 in 2010. The precious metals price reached a nominal record high settlement price of $1,889.70 on August 22.

Investor gold purchases remained strong in 2011, helping push gold prices to record-high levels last year. Investors bought 34.3 million ounces in 2011, said Christian. "Most investors buy gold as a long-term investment, they buy and rarely sell. They buy more gold when they are extremely concerned about the economy and financial stability, as in the July-September period of the last year. There's a lot of investment demand for gold. In the 1990s, private investors bought 10-15 million ounces a year, but in the last two years this amount rose to 30-35 million ounces a year.

"As the short-term investors slip away from the market, the gold price will go down, and long-term investors will buy more gold at a reasonable price. That's what happened in the gold market lately," said Christian.

Christian also said the global gold market is too small for a conversion market for foreign exchange to gold. "The emerging countries are seeking to diversify their reserves by buying gold. The problem is that the gold market is too small to convert dollars or Euros to gold. So they can only buy a little amount of gold compared to the dollars flowing in. Currently, 1.1 billion ounces of gold are held by private investors, this equals approximately $2 trillion in current prices. In theforeign exchange markets, $65 trillion dollars is held by investors worldwide, so you have 33 times more currencies than gold. There's only a marginal shift to gold, only 1% percent of the global investors are buying gold. If you didn't buy gold in the last decade of crisis, you will not buy gold in the coming years. This is a marginal market compared to currency markets."

Christian also predicted that the new investments in gold mining will continue. "Within the current price environment--gold prices at $1,600 dollars an ounce--a gold mining company can gain $100 of profit per ounce, or 15%. In last three years, gold mining increased 2-3% a year, and we expect the ongoing mining projects to continue. Also, in 5-10 years, 20 million ounces new capacity come on stream," Christian said. On Comex, gold futures for April delivery rose 1.4%, or $23.20, to $1,685.60 dollars an ounce, the biggest gain since February 21.

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