Reply #87: J.P. Morgan sees gold near $600/oz by year-end

[EuroObserver]

LONDON (Reuters) - Gold prices may reach almost $600 an ounce by the end of the year on supply worries, firming jewellery demand, geo-political concerns and favourable currency environment, J.P. Morgan Securities said in a report on Monday.

Prices might even jump to $800 from $556 now, if Iran's nuclear issue heated up and oil hit $100 a barrel, it said. Oil prices are currently ruling at around $68.

"For gold, event risks are surfacing at a time when mining supply was already inadequate and jewellery demand firming. Fundamentals alone justify prices near $600 by year-end, while a meltdown in Iran/spike in crude could see $800 gold," it said.
...
The report said the market needed both mine supply and considerable amounts of other sources of supply such as sales by central banks and investors to achieve balance

By 2007, non-mine supply would be needed to be half of mine supply to balance the market, considering growth rates in jewellery demand, the report said.

"In our opinion, there is a zero percent possibility of mines achieving 50 percent production growth by 2008," it said.
...
The reports said gold was likely to gain from a favourable currency environment, with the dollar seen range-bound in the first half of the current year, while weakening later.

A weak U.S. currency makes dollar-priced gold cheaper for holders of other currencies and lifts gold demand.
...
"Gold's bullish hues are based on a stagnant supply profile, rising investor interest in real assets and the influx of petro-dollars from the Middle East," the report said, adding the magnitude of petro-dollar flows was difficult to measure.

The report also noted that central banks had ceased to be net sellers of gold for the first time since 2003. It did not elaborate.

/more...