However, analysts said gold prices might reach a record high above $2,000 an ounce in late 2012 or early 2013.
Gold hit $1,763.15 an ounce last week, which was the highest level since Dec. 2 but still below the record peak of $1,921.15 that was struck on Sept. 6. However, gold tumbled to as low as $1,733.35 on Friday.
Gold has been a top-performing asset since 2001 as portfolio diversification, concerns over sovereign risk and rock-bottom interest rates have helped lift prices from a low near $250 an ounce in 2001 to a peak above $1,920 in September 2011, Reuters said.
Metals consultancy GFMS said in its recent report gold may reach a record high above $2,000 an ounce in late 2012 or early 2013.
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.
"As the world economic uncertainty increases in major parts of the world such as in Europe (breakdown of the euro zone possible) and in the US (huge amount of debit exceeding $16.2 trillion), we will witness stronger demand for gold," Sami A. Al-Nwaisir, chairman of the board of ALSAMI Holding Group, told Arab News.
On the other hand, he said, there is an improvement in income for some of the emerging economies such as India, which will result in the increase for gold demand, especially among the middle-income people of India (which is continuing to grow). Thus there will be an increase in demand and the consequent rise in gold prices due to uncertainties in Europe, huge US debt and the possibility of world recession.
"Gold is used as safe haven during the time of uncertainty. Thus we will see an increase in gold prices during 2012 with the possibility of reaching $2,000 an ounce," Al-Nwaisir said.
Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said gold is likely to remain relatively resilient in 2012, although quite possible subject to considerable volatility. This is partly the result of a highly uncertain global economic environment.
"We have seen in recent months that the deteriorating conditions in the euro zone have to an extent restored the US dollar to its safe haven status, at times at the expense of gold. On the other hand, the persistent structural challenges are once again pushing economic policy in the direction of unorthodox steps with a new wave of quantitative easing in the US increasingly talked about as a possibility. Such policy creativity would almost certainly support gold as confidence in paper currencies takes a hit," Kotilaine said.
He added the structural demand drivers for gold remain strong and fairly resilient. Central bank purchases, especially on the part of emerging economies, are likely to continue to go up.
"Gold is seen as a more credible alternative to the dollar than many currencies and emerging market central banks have far more modest holdings than their advanced economy counterparts which were part of the Gold Standard," Kotilaine said.
He added a number of institutions are building up larger exposures to gold. Although part of the investment demand is speculative in nature and potentially vulnerable to corrections, the general trend is toward higher long-term holdings. Also individual investors are finding it easier to include gold in their portfolios thanks to a growing array of investment vehicles.
Jewelry demand is being tested in some markets (India, Turkey, etc.) by unfavorable exchange rate dynamics but tends to be fairly resilient. The supply side is responding with a number of new mining ventures but the demand-supply balance remains tight.
Gold's price appreciation was generally higher in currencies other than the US dollar, especially in developing markets, with the exception of China, as they saw marked declines of their currencies against the US dollar in the later part of the year. Not surprisingly, the WGC said euro depreciated the most among developed countries relative to the US dollar, on the back of continuing sovereign debt issues, pushing gold prices up 11.6 percent in local terms during the year. Over the same period, gold also rose in Japanese yen terms, but only by 3.6 percent as Japan's currency was one of the few to strengthen against the US dollar.
The WGC report said in developing markets, on one hand, the Turkish lira, Indian rupee and South African rand depreciated the most and gold prices rose by approximately a third. On the other hand, as the Chinese yuan started to take a more important role in the international monetary system, it has experienced a consistent appreciation since June 2010. In turn, gold rose by a more modest 4.3 percent in local currency terms during the year.
Paul Gamble, head of research at Jadwa Investment, said: "Gold is very difficult to value because demand is largely precautionary, rather than for consumption purposes, and it does not have a yield. Certainly many potential risks are ahead for the global economy, mainly centered around the situation in the euro zone, which investors may want to use gold as a hedge against."
However, he said gold prices have risen enormously in recent years and it is not clear how much scope there is for further increases before investors view it as too expensive.
