Gold 'to hit $2,000' on Spain fears

Rising fears about the region’s fourth largest economy will send a fresh flood of investment towards the “safe haven” metal, according to the annual report from Thomson Reuters GFMS.

Philip Klapwijk, global head of metals analytics at the consultancy, said: “We could easily see last September’s record high [a closing high of $1,900.23 on September 5] being taken out.

“A push on towards $2,000 is definitely on the cards before the year is out, although a clear breach of that mark is arguably a more likely event for the first half of next year.”

Demand for gold often sees a boost when fears about the situation in Europe intensify. The metal can likewise benefit from the prospect of more quantitative easing (QE), as investors seek to protect their wealth from the inflationary effects of central bankers’ actions.

In the shorter term, GFMS thinks the apparent abatement of the eurozone crisis and reduced expectations for a third round of quantitative easing or “QE3” in the US could drive the gold price lower, perhaps below $1,550 in the next couple of months.

However, GFMS expects any softening in the price to prove temporary as “acute” fears over eurozone sovereign debt, focused on Spain, resume.

Meanwhile it will become clear that the faltering US recovery will force the Federal Reserve into extra monetary stimulus, GFMS believes, while the newer economic powerhouses of China, India and Brazil will also become obliged to loosen their monetary policy.

“A corollary of all this monetary largess is fears about resurgent inflation, and that becomes all the more likely if oil prices motor higher, should tensions get any worse between Iran and the US,” said Mr Klapwijk.

Next year could prove the "high water mark" for the gold market, he added, depending on whether a resolution to the European situation and the prospect of a normalisation of monetary policy materialise.

Gold has now been on a bull run for more than a decade.

The report found that total investment in gold actually dipped last year in tonnage terms, as selling in the futures and OTC (over the counter) derivatives markets – due to profit-taking and liquidity squeezes, which meant people cashed in on their gold holdings – outweighed a bumper year for physical investment.

None the less the strength of this buying meant that in value terms, net world investment rose in gold by 15pc to a record level of just over $80bn.

However in volume terms, investment in gold actually fell 10pc to 1,605 tonnes, as implied net investment – covering the demand from institutional investors and exchange-traded funds – collapsed by almost 90pc.

GFMS attributed this to steep sell-offs in the futures markets, driven by profit-taking and liquidity squeezes, which meant people cashed in on their gold holdings.

In contrast, it was a bumper year for physical investment – people buying bars – which leapt by 37pc to a record 1,209 tonnes in 2011. Words to go in here please on two lines to go here

Gold was trading at around $1,660 an ounce in London on Wednesday.