THE factors that drove gold above $1000/oz last month are still present, despite a recent fall to about $900/oz, so the price can be expected to rally again, London-based metals research house GFMS said yesterday.

In the latest GFMS Gold Survey for this year, which analyses the performance and outlook for gold, GFMS chairman Philip Klapwijk said dollar weakness and "skeletons in banks' closets" persisted. But at what level gold would peak was hard to predict.

A year ago, when gold was about $675/oz, GFMS predicted it could rise to $850/oz or higher after a severe correction in the US economy, a prediction that turned out to be conservative.

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Global gold output fell 0,4% last year, compared with 2006. This 11-year low was mainly because of lower output by South African mines, while gold production rose in Indonesia and China, GFMS said.

Klapwijk said power-related issues were likely to result in a continuing decline in production in SA this year.

Last year, growing demand from investors for gold in the second part of the year was offset by declining jewellery sector demand; in the first half of the year the opposite happened.

Most jewellery demand came from the Middle East but there was a substantial increase in demand from China. Jewellers in Italy and the US bought less gold than in 2006.

From September, gold exchange-traded funds and futures markets drove the price higher as investors sought to protect wealth in the face of a loss of confidence in the banking sector, GFMS said. Most of these investors were institutions or wealthy individuals.

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