Going into 2006, we maintain our positive view towards gold and note that prices have the potential to top $600/ounce in the course of this year, strongly influenced by the still massive funds floating around globally. |
It is unlikely that the physical market will suddenly assume a lead role. This means that price rises will again be strongly driven by investors. |
It would appear that the market is simply looking ahead to the tightness looming for later in the year. |
The fact is we have massively underestimated the impact of investment fund flows into the sector. |
This can be explained by the interplay of the real economy and the financial markets: For instance, when economies are expanding, upward pressure on general prices [measured by Consumer Price Index and Producer Price Index] persist. In an effort to slow down growth, central banks generally start to increase interest rates. |