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Renewed investment to drive gold price to over $1 800/oz by year-end – GFMS
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4th April 2013
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JOHANNESBURG (miningweekly.com) – The price of gold will rise to over $1 800/oz by the end of the year on the back of economic developments in the US and a recovering global market, the Thomson Reuters GFMS Gold Survey 2013 showed.

Head of the consultancy’s precious metals research and forecasts division Neil Meader doubted that the ongoing debate in the US relating to budget cuts and the further raising of the debt ceiling would be resolved in the near term, which would underpin the gold price this year.

“Gold is likely to remain very sensitive to US monetary policy and, even though we’ve had some hawkish noise from some within the Fed, it is difficult to see a material unwinding of the quantitative easing programme until well into 2014, which should bolster the gold price in 2013,” he commented.

The report, released on Thursday, indicated that events in Europe would further augment the price of the yellow metal, citing a significant potential for gold-friendly shocks as evidenced by the price uplift seen in mid-March on the back of the economic volatility in Cyprus.

Additional positive factors included the maintenance of a low interest rate environment and some investors’ fears over the potential for the resurgence of inflation.

The consultancy did inject some caution though, with Meader adding that, while the survey perceived a return to a more stable macroeconomic backdrop, this could easily entail the start of a secular bear market late this year or early next year.

Turning to the market’s fundamentals, GFMS believed that a relatively sluggish supply-side response to firm prices should provide support this year, having already done so in 2012.

“Mine production may have reached a record level of 2 861 t in 2012, but the pace of growth fell notably in comparison to recent years as a consequence of the slower-than-expected ramp-up of several significant projects, as well as the impact of the widespread strike action in South Africa,” Meader said.

Further, scrap eased fractionally in 2012, with near-market stocks having been notably depleted, which meant a drop in total supply.

Meanwhile, on the demand side, while losses in physical bar investment drove a drop in total investment, it still rose in approximate value terms.

Factors contributing to the slightly restrained investment environment in 2012 included the relatively strong US dollar and the loss of upward momentum in the gold price.

However, support continued from many investors remaining wary of conventional assets and through the persistence of negative real short-term interest rates in many countries.

Investors were also encouraged by the continuing vigour of demand from the official sector, which reached a 48-year high in 2012 as a broad base of central banks
expanded gold holdings against a backdrop of near absence by Central Bank Gold Agreement signatories.

“Such support was certainly needed to overcome the reduction of 5% in total fabrication, which was largely owing to losses in jewellery demand. These, in turn, were chiefly attributable to lower offtake in India,” Meader noted.

“However, given price rises and a shaky economic backdrop, the performance of the global total was still felt to have earned the description ‘resilient’.”

Edited by: Chanel de Bruyn

 

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