How high will gold prices climb? The metal has recently been challenging the $670 an ounce mark, and Citigroup, which reports that the market “appears healthier than ever”, expects gold to move above the $700 level “in the next few months”, before rising to $750 in 2008. It predicts that a combination of strong economic growth in key markets China and India, revived demand in the Middle East – where events such as conflict in the Lebanon affected last year’s sales – and the popularity of gold exchange traded funds (ETFs) will buoy the price.
ETFs have already become the “main driver of investment demand growth”, says Chris Flood in the FT. The launch of several new gold ETFs last year saw inflows rise by 27% to 265 tonnes, overtaking demand for gold bars, which fell by 18% to 214.5 million tonnes. By the end of 2006, total gold stocks held by ETFs and other similar funds totalled 652.5 tonnes, worth around $13.3bn.
And there’s plenty of room for more investors to get on board. World Gold Council CEO James Burton, also writing in the FT, notes that the WGC knows of “only 22 pension funds, endowments and foundations” investing in gold. The value of these, at around $28bn, is “still a drop in the ocean” in terms of total global pension fund assets. “This is very much the beginning,” he says. Investors keen to get exposure to gold can do so via London-listed Lyxor Gold Bullion Securities (GBS). For more on gold, see our section on investing in gold.