LONDON, October 8, 2009 - Record gold prices risk cutting demand for gold jewellery as the Christmas season approaches, and could boost interest in alternative precious metals, notably silver.
Spot gold hit a fresh all-time high for a third straight day of $1,058.20 an ounce today and technical analysts see the next target at $1,120.
A weaker dollar and fears over potential inflation, spurred by a huge U.S. economic stimulus package and bank bailouts, have driven the rally in gold prices to record peaks this week, and several analysts predict that gold prices will test new all-time highs in the fourth quarter of 2009.
Physical demand for gold though will likely suffer as a result of the soaring prices.
Gold jewellery manufacturers and exporters lament that the spike in prices comes in the runup to the Christmas season, a most important time of the year for sales.
The challenges facing gold jewellery may represent an opportunity for silver, although gold's rally has lifted silver which has reached its strongest level since July 2008. Spot silver earlier today touched a high of $17.89 an ounce.
Many people will think twice before paying big premiums for gold jewellery and will look at less costly alternatives, such as silver, and at other types of luxury goods, like holidays abroad.
Industry observers will keep a close eye on Diwali later this month for signs of the impact of the sky-high gold prices on jewellery demand.
Footfall in the gold souk at Dubai will also be a barometer of the health of gold jewellery demand in the coming days.
Italian gold industry officials are concerned over the impact on exports of Italian gold jewellery, not just because of the high price of gold but also because of the volatility of prices.
Italy is the world's biggest exporter of gold and silver jewellery.