(Kitco News) - Gold is likely to give up some of its recent gains but then recover again into year end, averaging $1,400 an ounce in the fourth quarter, Commerzbank said in a forecast released Wednesday.
Spot gold rose to just above $1,392 an ounce early this week and was up some 15% for the year to date, the bank said. The metal also was up around 13% in euro terms.
Commerzbank said it previously had expected gold to rise in 2014, unlike many other analysts, but nevertheless was surprised by the early timing and scale. Supportive influences included uncertainty and turmoil in emerging economies, geopolitical tensions involving Russia and Ukraine, plus declining U.S. Treasury yields. The reversal in outflows from exchange-traded funds was significant, Commerzbank said.
“After 24 tons of gold was withdrawn from the ETFs in January, these outflows have since almost entirely reversed,” the bank said, describing this as a “huge relief” for the price of gold. Heavy ETF outflows exacerbated price losses in 2013.
Gold got a further boost on buying from short-term speculators, with net length in futures and options on the Comex division of the New York Mercantile Exchange up sharply since the start of the year.
Nevertheless, Commerzbank said it sees the precious metal coming under temporary pressure again, particularly if the Crimean crisis were to ease.
“Speculative financial investors would then doubtless start taking profits, especially given that real interest rates should likewise rise again on the back of better U.S. data, thereby also lifting the U.S. dollar,” Commerzbank said. “Physical demand in Asia is being noticeably dampened already by the higher price level as the price discount of gold on the Shanghai Gold Exchange to gold traded in London shows.”
However, the bank then looks for an upswing during the course of the year, especially if India loosens restrictions on gold imports, meant to combat a current-account deficit. Asian demand should remain a supportive factor, with China expected to consume as much gold as in 2013.
“Inflows to gold ETFs are not even necessary for a higher gold price,” Commerbank said. “Assuming that demand for gold jewelry, coins and bars in 2014 is similarly strong to last year, total gold demand would reach a
record level without ETF inflows. We therefore expect the gold price to advance to 1,400 USD a troy ounce by the end of the 2014. Significant ETF inflows would imply upside risks for this forecast.”
Silver has followed gold higher this year but underperformed, with weak industrial demand putting the brakes on silver, the bank said. However, Commerzbank continued, silver should “reduce its under-valuation” to gold, assuming that industrial demand revives and no economic headwinds come from China.
“Furthermore, silver is relatively cheap compared to gold, which should
continue to support investment demand. We see the price of silver at 24 USD a troy ounce at the end of the year.”
By Allen Sykora of Kitco News; firstname.lastname@example.org