Shanghai. February 26. INTERFAX-CHINA - 1. Why did spot gold prices on the international market rise above $1,000 per troy ounce on Feb. 20, while commodity and equity markets have seen prices slide with the ongoing global economic downturn?
Booming investment demand for gold has pushed up spot prices on the international market in recent weeks as global stock markets continue to worsen. Investment funds have turned to the gold market to avoid risk. In addition, the currencies of various countries around the world including the euro and the Japanese yen are continuing to depreciate, causing more investment funds to flee to the gold market in an attempt to hold the value of their funds.
The last time gold prices went above $1,000 per troy ounce was on rising global inflation.
2. How will the stimulus plans of countries all over the world affect spot gold prices on the international market?
Governments across the world are injecting huge amounts of funding to bolster economies. For example, the German government agreed to launch a stimulus package worth EUR 50 billion ($64.94 billion) on Feb. 20. These policies arouse investor concerns of potential currency depreciation, which will further encourage investment funds to move to the international spot gold market to avoid risk. If global economies recover through the implementation of such policies in the future, gold prices will also be supported by potential inflation.
3. What will affect gold prices in the coming months?
Over the past 30 years, 1 troy ounce of gold has had the equivalent value of 15 barrels of crude oil on average, although a peak of 30 barrels of crude oil per troy ounce was reached. If crude oil prices do not return to above $40 per barrel in the near future, it will be very difficult for spot gold prices on the international market to sustain their value of above $1,000 per troy ounce.
If the U.S. economy worsens in the next few months, its national bond prices will fall and more funds will flow from the U.S. bond market into the international spot gold market, pushing prices higher. Worsening global stock markets are also expected to prop up spot gold prices.
4. What are my predictions for international and domestic spot gold markets in 2009?
In 2009, I believe the average spot gold price on the international market will rise by 15 percent to around $1,003.09 per troy ounce. It is expected to reach a peak of $1,350 per troy ounce and a low of around $750 per troy ounce.
Domestic gold prices will mainly follow the trend of the international market. However, I think Chinese spot gold prices might perform better than international spot gold prices as China's renminbi is expected to depreciate by between 3 percent and 5 percent compared to its value in 2008. More Chinese investors will be attracted by the domestic spot gold market, as the domestic stock market will continue to be weak with the slowdown in economic growth. Investment demand for spot gold in the Chinese market is expected to grow by about 10 percent year-on-year in 2009, and average spot gold prices in 2009 are expected to be RMB 230 ($33.65) per gram.
The above is a personal opinion piece by the author. Its publication in no way implies that Interfax shares the views expressed in the article.
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