Nicholas Larkin
THE Gold price will rise towards $1 850 (R17 078) an ounce by the end of this year as US stimulus and debt concerns spur demand for a protection of wealth, before prices begin to drop as economic growth improves, according to GFMS, a unit of Thomson Reuters.
World investment fell about 1.8 percent to a four-year low last year as bar and coin purchases slowed, GFMS said yesterday. Central-bank buying at a 48-year high provided a “firm floor” for prices last year and would probably remain at a similar pace this year, it said. Global jewellery demand might weaken this year as recycling increased amid higher prices, the researcher said.
Bullion rallied the past 12 years and as much as doubled since 2008 after central banks increased stimulus to bolster economic growth. Prices slid this year on confidence that a recovery was strengthening and as some Federal Reserve policymakers debated the pace of debt buying.
The International Monetary Fund predicts global expansion will climb to 4.1 percent next year, from 3.5 percent this year.
“Even though we’ve had some hawkish noise from some within the Fed, it’s difficult to see a material unwinding of the quantitative easing programme until well into 2014,” GFMS head of precious metals research Neil Meader said.
“We can perceive a return to something more like normality for the macroeconomic backdrop, and that could easily entail the start of a secular bear market, perhaps in late 2013 or more probably in 2014.”
Bullion for immediate delivery fell 7.3 percent to $1 552.78 in London this year. It averaged a record $1 669 last year and set an all-time high of $1 921.15 in September 2011. A close at $1 520.18 would be a 20 percent drop from September 5, 2011, and the common definition of a bear market.
Prices slid 4 percent since March 21, when they reached a three-week high as delays to Cyprus’s bailout added to concern over Europe’s debt crisis.
The Fed is purchasing $85 billion of Treasury and mortgage debt a month. Automatic federal government spending cuts, or sequestration, took effect last month and will trim $85bn across federal agencies to September.
World gold investment slipped to 1 605 tons last year, the researcher said. The value still rose for a fifth consecutive year to a record of about $86bn. Bar demand dropped 17 percent to 998 tons and official coin sales declined 18 percent to a four-year low of 200 tons last year, GFMS said.
Investors sold about 195.1 tons from exchange-traded products since holdings reached a record in December, data compiled by Bloomberg show. They now own 2 437.4 tons, equal to more than 10 months of mine production.
Total fabrication use slipped for a second year last year, falling 5.3 percent to 2 613 tons, GFMS said. Jewellery demand decreased 4.2 percent to a three-year low of 1 893 tons last year as buying slowed in Europe and fell to a three-year low in India. China’s jewellery fabrication increased for a 10th consecutive year, rising by 0.6 percent to a record 498 tons, the researcher said.
Central-bank purchases increased 16 percent to a 48-year high of 532 tons last year, GFMS estimated. It said the gross figure did not include the increase in reserves reported by Turkey, which has been accepting gold in its reserve requirements from commercial banks. Buying might total as much as 150 tons each quarter this year, it said.
“Central banks in the developing world are expected to continue their moves into gold,” GFMS wrote in the report. Gold would “remain a useful means of reserve diversification and a hedge against currency debasement”.
Scrap sales dropped about 3.1 percent last year to a four- year low of 1 616 tons, even as recycling in India’s sub-continent region climbed.
Gold was fixed at $1 546.50 an ounce in London yesterday afternoon, down $28.25 from Wednesday’s second fix. – Bloomberg