J.P. Morgan analyst Steve Shepherd has joined the growing consensus that expects gold prices to remain strong for years to come.

In a note to clients, he wrote that gold's safe haven status has once again come to the fore because of the global financial crisis. That has strengthened investor appetite for gold and spurred on a big round of ETF buying. ETFs now own about 40 million ounces of gold, he noted, worth about US$36-billion at current prices.

"We expect increased investment demand to make up for any losses from traditional jewellery markets in India, China and the Middle East to underpin gold prices," he wrote.

He also pointed out that mine production and central bank sales are declining, two factors that should keep the gold market tight.

Put it all together, and he expects gold prices to stay around US$1,000 an ounce for the next couple of years. Using Comex options price data, he forecasted an average gold price of US$965 an ounce this year, US$1,016 an ounce next year, and US$1,057 an ounce in 2011. He was previously calling for just US$825 an ounce in 2010 and 2011.

Mr. Shepherd kept his long-term price unchanged at US$750 an ounce, but also noted that prices could easily overtake his forecast if inflation concerns and market "jitters" get significantly worse.

Peter Koven