Analysts have boosted gold price forecasts for this year and next due to persistent concerns over the euro zone debt crisis, and fresh worries over the U.S. recovery and debt.
Reuters' biannual poll of precious metals price forecasts found that just over half of the 52 respondents who returned gold views expect prices to average $1,500 an ounce or more this year, against just over one in five who responded to a similar poll conducted in January.
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"There are still strong fundamental reasons why gold remains attractive to investors," said Ong Yi Ling, and investment analyst at Phillip Futures in Singapore.
"They include persistent euro zone debt concerns, a weak dollar -- as monetary policy of the Fed remains loose -- and increased demand from emerging economies (and) central banks."
The survey returned a median average price forecast of $1,510 an ounce, up from $1,453 an ounce in January, when many investors had hopes the global economy was on track to steadily recover.
Next year respondents expect prices to average $1,575 an ounce, against expecations for $1,425 in the earlier poll, continuing the metal's bull run for a twelfth successive year.
Spot gold hit a record $1,609.51 an ounce earlier this week as investors worried the debt crisis that hit Greece could spread to Spain and Italy, and over negotiations to raise the U.S. debt ceiling, failure of which could lead to default.
"Even in the likely event Congress agrees to a debt ceiling rise, recent uncertainties are likely to reinforce central banks' ongoing efforts to diversify from the dollar into gold and other assets," said Peter Buchanan, a Toronto-based commodities analyst at CIBC World Markets.
OFFICIAL SECTOR BUYS
Further support will be lent to prices by the official sector, analysts said. Central banks have increasingly looked to hoard gold in recent years, with its status as a currency diversifier making it a valuable asset for them.
According to the World Gold Council, central banks turned net buyers of gold in 2010 for the first time in 21 years, as banks in emerging markets added to reserves and sales by the European official sector dried up.
Global central bank gold reserves rose by more than 900 tonnes over the nearly three years to June 2011, a period that included the global financial crisis, according to the World Gold Council. Conversely, they fell by 1,283.6 tonnes in the three years to September 2008 as banks sold off some holdings.
Concerns over rising inflation in major developing markets such as China are also supporting gold, which is often seen as a safe store of value in an inflationary environment.
"Despite the debt issues which have been widely discussed recently and worries over an overheating economy, the Chinese government has enough policy levers to keep growth proceeding well," said David Jollie, an analyst at Mitsui Precious Metals in London.
"This may, though come at a cost of sustained real inflation, something that is likely to support the gold price."
Analysts were more cautious on silver prices, however, after they retreated sharply after spiking higher early in the year. Silver has fluctuated between just over $26 and nearly $50 this year, showing far greater volatility than gold.
It is expected to average $36.60 an ounce in 2011, with its stellar performance early in the year lifting that forecast from the $30.00 it stood at in January. Next year prices are expected to average $36.25 an ounce, well above January's estimate of $28 an ounce.
"Silver may be pulled higher, accompanying gold, but as the metal has surged and slumped in a short interval in 2011, it may take a while for the market to recover," said Koichiro Kamei, managing director at financial research firm Market Strategy Institute in Tokyo.