Gold could drop to less than $900/oz in the short-term, says U.K.-based consultancy GFMS Ltd. In a statement released last week, the consultancy anticipates that the gold market will be in surplus this year fueled by concerns over the global economy and the health of financial markets. Moreover, investors will increasingly focus on a newer worry, namely the probable longer-run inflationary consequences of governments and central banks ultra-loose fiscal and monetary policies.
That being said, GFMS warns, it may well not be a straight line rally as a summer lull or the need for inflationary pressures to build could result in a period of sub-$900 prices in the short term. After the drop, the consultancy expects gold to reach $1,000 and even reach a new record high before year-end.
In other gold news, the World Gold Council (WGC) last week warned the Indian government that a new policy to double the gold import duty could lead to additional smuggling especially during periods of high demand during festival season. The import duty has doubled from 100 rupees per 10 grams to 200 rupees per 10 grams. According to the WGC this brings the price difference between internationally sourced gold and Indian domestic gold to 3.5%, up from 3.0%.
The Indian gold market is notoriously sensitive to price, said Ajay Mitra, WGCs managing director of the Indian sub-continent. We have recently seen record rupee prices, and coupled with the impact of global recession this has put a significant dampener on local gold demand.
India is, of course, the worlds largest consumer of gold.
At the time of this writing, gold is trading at $910.