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Thomson Reuters GFMS Sees Gold Averaging $1,225/Oz In 2014

By Kitco News
Thursday January 23, 2014 10:46 AM

(Kitco News) -Professional investors may have lost interest in gold but demand continues from “grassroots” buyers in traditional gold-buying nations, said Thomson Reuters GFMS Thursday.

The London-based precious-metals consultancy said it looks for gold to average $1,225 an ounce in 2014, suggesting it could test as high as $1,330 in the early part of the year but also later test $1,000 on the downside.

The consultancy outlined its views in conjunction with the release of the second update to its 2013 Gold Survey.

“Professional investors continued to lose interest in gold, but ‘grassroots’ buyers maintain their healthy appetite for the metal, and while physical bar investment was at record levels, gold fell from grace overall,” said a synopsis of Thomson Reuters GFMS’ findings.

Gold may take a “back seat” to other asset classes this year, but strong physical demand should enable the metal to average above $1,200, the consultancy said. Analysts look for the highs in the first quarter of the year, with the metal possibly retesting $1,330 an ounce.

The physical market for gold moved “dramatically” toward the eastern part of the world during the middle of 2013, Thomson Reuters GFMS said. Professional investors “disgorged” metal, but it was snapped up by “rampant” demand in Asia and the Middle East.

Rhona O’Connell, head of metals research and forecasting, commented that while the professional market seemed to be obsessed with the tapering of U.S. Federal Reserve quantitative easing, private individuals in traditional gold-investing countries had no such qualms. As the price tumbled in the second quarter, these buyers entered the market.

The net result was that while investors sold ETF holdings amounting to 880 metric tons over the course of 2013, bar hoarding in East Asia, the Indian sub-continent and the Middle East amounted to 1,066 tons, with a global total of 1,338 tons.

Combined, the two sectors accounted for a net 458 tons of physical gold investment in 2013, against 1,285 in 2012, the consultancy said.

The reduced interest of professional investors is expected to persist into 2014, Thomson Reuters GFMS said. That means while there is potential for a short-covering rally in the first quarter, the market has not regained the “sparkle” of the period from 2008 to late 2011, the consultancy said.

Improving economic fundamentals are expected to continue to grow investor appetite for risk, which will work against the gold market, the consultancy said. Thus, while the metal may stage a rally early in the year, gold is likely to follow a more traditional seasonal pattern than has been the case in recent years.

“This points towards the possibility of brief tests of $1,000 should there be any further investor retreat in the second and quite possibly the third quarters of the year, but physical demand is expected easily to be robust enough to defend any test of this level and any such dips would be short-lived,” said the consultancy’s synopsis.

“Indeed the fundamentals point to a gold market more or less in fundamental balance during 2014 and this leads to an expected price upturn in the final four months of the year, although Thomson Reuters GFMS does not expect the price to breach $1,300. The price is forecast to average $1,225/ounce over the year, 13% below that of 2013.”

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The consultancy reported that China was the world’s largest jewelry-fabricating nation in 2013 at 724 tons, or 33% of the global total. Growth in India was choked off by government restrictions on imports due to a massive current-account deficit. Indian jewelry fabrication fell 1%, although the consultancy noted that smuggling is believed to have picked up. India’s fabrication was 613 tons, meaning China and India collectively accounted for 51% of the world’s jewelry fabrication, Thomson Reuters GFMS said.

Net of scrap, global jewelry fabrication rose 48% year-on-year, Thomson Reuters GFMS said.

Mine supply rose 4% due to new operations and higher grades at some mines, the consultancy said. Meanwhile, the global hedge book contracted by 50 tons and stood at just 73 tons at year-end.

Official-sector purchases slowed to 359 tons in 2013 and are likely to slow further this year, although central banks are expected to remain net buyers, Thomson Reuters GFMS said.

By Allen Sykora of Kitco News; asykora@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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