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Gold To Stay Above Last December's Lows in 2014: CPM Group

By Kitco News
Tuesday March 25, 2014 4:00 PM

(Kitco News) - Average annual gold prices are expected to remain steady and stay above the lows seen at the end of 2013, said CPM Group Tuesday.

The New York-based consultancy released its annual gold yearbook at Bloomberg’s headquarters during an event fittingly called, An Evening On Gold which featured a panel of gold experts. The yearbook is considered one of the industry’s most coveted staples for forecasting the metal.

Findings from CPM Group’s Gold Yearbook show gold prices averaged $1,409.43 an ounce in 2013, down 15.6% from the average gold price of $1,670.15 an ounce in 2012.  This was the first annual average decline for the yellow metal in more than a decade.

“The decline was sharper on a daily basis, with prices slipping to $1,202.30 on 31 December 2013, down 28.3% from the end of 2012,” CPM Group said.

The firm now expects gold prices to move higher than they were at the of 2013, with an  average annual  forecast of $1330 an ounce.

Last year’s pullback was due to investors not buying as much gold as they had in recent years, indicating a shift in investor attitude toward the economic recovery, the firm explained.

“While some investors continued to buy large volumes of gold, keeping overall investment demand very high, other, shorter term investors were cycling out of gold into equities and real estate,” CPM Group said.

However, the firm noted that there are several good reasons for market participants to remain interested in owning gold.

“It is CPM Group’s expectations that as investors come to feel more confident that the downside for gold is limited, they should be expected to return as increased volume buyers of the metal.”


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Central banks continued to be net buyers of gold for the sixth consecutive year in 2013, despite a sharp reduction in gold purchases during the year, the yearbook’s findings revealed. 

CPM Group reported that gross additions to central bank holdings reached an estimated 6.3 million ounces last year, the lowest level of central bank purchases since 2007.

The firm added that central banks are expected to buy 5.4 million ounces of gold on a net basis in 2014.

The lower gold prices were also good news for fabrication demand, which rose strongly to 92.0 million ounces in 2013, up from 82.6 million ounces in 2012.

This level of growth has not been seen since 1989, said CPM Group. The yearbook noted that fabrication demand could rise even further, by 4.7%, in 2014.

Investment Demand

The firm said that investment demand, a key determinant of gold prices, declined to 30.9 million ounces in 2013, down 17.8% from 2012.

Despite the decline, the demand was still considered high by historic standards, CPM report said.

Combinations of factors were the reason behind the decline in investment demand, the firm noted.

“Longer term investors continued to be interested in adding gold to their holdings but had become increasingly price sensitive. Meanwhile, some shorter term investors had grown disillusioned by the lack of gold’s ability to break past levels seen in late 2011, resulting in these investors liquidating their holdings at an accelerated pace during 2013,” the firm said.

This “tug of war” between short-term and long-term investors is expected to still be present in 2014, CPM Group said.

The yearbook noted that net additions to investment demand are projected to total 21.4 million ounces during the year, down 9.5 million ounces from 2013.

Supply

On the supply side for gold, newly refined supply, composed of mine supply and secondary supply, reached 123.4 million ounces in 2013, down 5.7% from 2012, CPM  Group said.

However, new records were made on the mine supply side.

Total mine supply rose to 84.2 million ounces in 2013, up from 83.7 million ounces in 2012, the yearbook highlighted. The firm said this was the highest level of mine supply since 1999, when gold mine supply touched a record 85.4 million ounces.

The increase in mine supply surprised some market participants said CPM, but it should not have.

“Mine supply typically declines due to falling prices with a lag. The initial reaction is that producers shift away from lower grade ore zones to mine higher grade ore, boosting output and reducing unit costs. Furthermore, the rising gold prices environment over the past several years has resulted in several dollars being expended on exploration and expansions,” the firm said.

CPM Group will release its Silver Yearbook on April 29 and its Platinum Group Metals Yearbook on June 24.

By Daniela Cambone of Kitco News dcambone@kitco.com
Follow Daniela Cambone on Twitter @DanielaCambone

 

 

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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