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Gold may reach a record high above $2,000 an ounce in late 2012 or early 2013, but the precious metal is nearing the end of a decade-long run that has lifted prices by more than 600 percent, metals consultancy GFMS said on Tuesday.
Gold has been a top-performing asset since 2001 as portfolio diversification, concerns over sovereign risk and rock-bottom interest rates helped lift prices from a low near $250 an ounce in 2001 to a peak above $1,920 in September 2011.
It is likely to surpass that level in the final quarter of 2012 or the first three months of next year, GFMS said, potentially breaking through the $2,000 an ounce level.
"A combination of factors will ensure that sufficient demand from investors and to a lesser extent official sector institutions comes into the market for it to clear at higher levels," the company said in the second update to its Gold Survey 2011.
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"Concern over nearly all currencies' long-term value remains acute, and this includes the U.S. dollar, which to a large extent has found favor simply as the 'least bad' option, especially in light of growing fears over the break-up of the euro zone."
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However, a normalization of the broader financial landscape in the next few years is likely to take some of the wind out of gold's sails.
"The report does acknowledge that the gold market is nearing the closing stages of its decade-long bull run and that, once the macroeconomic backdrop changes and investment in gold fades - probably some time next year - a secular retreat in the price will unfurl," said GFMS, which is owned by Thomson Reuters.
For the first half, the company forecasts gold prices will average $1,640 an ounce, close to current levels. A rising dollar and increased risk aversion, which in recent months has pressured gold, could curb price gains in the short term.
In the second half, it sees prices at an average of $1,840 an ounce.
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GFMS expects jewelry demand to soften by 3.1 percent in the first six months of 2012 to 1,027 tonnes, in line with a 2.2 percent decline in overall demand to 2,199 tonnes.
Most of this decline will likely be due to softer demand from India, still the world's biggest bullion buyer. The gold market is moving into a less auspicious year, GFMS said, and rupee weakness has tended to negate dollar gold's declines.
China and Turkey are set to be the main drivers of jewelry demand, and the former may overtake India as the world's biggest gold consumer in the first six months of the year. Last year total Chinese gold demand reached 850 tonnes, GFMS said.
"In terms of calendar year 2011, India was ahead, but ... it does seem as though China, in terms of our data for the first half, may just tip ahead," Philip Newman, research director for precious metals at Thomson Reuters GFMS, said.
