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HSBC Sees Gold Ranging From $1,150 To $1,350 For Rest Of 2014

By Allen Sykora Kitco News
Tuesday September 2, 2014 2:38 PM

(Kitco News) - HSBC said Tuesday it sees gold trading in a range of $1,150 to $1,350 an ounce during the remainder of 2014 in a market “searching for a new equilibrium” with a number of offsetting factors.

The bank left its 2014 average price forecast at $1,292 an ounce and listed 2015 and 2016 forecasts of $1,310 and $1,345.

“Gold is searching for a new equilibrium after last year’s price plunge, which ended the more than decade-long bull run,” HSBC said. “The massive gold-exchange-traded funds (ETFs) outflows of 2013 –which were instrumental in driving prices lower – have largely abated. Another positive is that net long positions on the Comex are rebuilding. Other factors supporting prices are that mine production gains are plateauing, scrap supplies are down and central bank demand is steady.”

Conversely, expectations for dollar strength are likely to create headwinds for further rallies, HSBC said. Also, the tapering of asset purchases by the Federal Reserve and low global economic growth and inflation rates discourage a return of institutional investment, although these are already factored in by the market, the bank said.

Jewelry, coin and bar demand is down by double-digit percentages from a year ago as the key markets of China and India have softened, HSBC said. However, the bank continued, this comparison is also “misleading” since last year was a record high for this demand.

“Long-run economic and demographic trends argue for increasing emerging-market bullion demand,” HSBC said. “Near-term gold consumption would likely be stimulated by any decline in prices to or below the USD1,200/oz level, we believe.

“These factors largely balance out so we are leaving our price forecasts unchanged. We see a broad price range of USD1,150-1,350oz for the remainder of this year, with an average price for 2014 of USD1,292/oz.”

Outflows from gold ETFs slowed to a “trickle” this year from a “deluge” in 2013, said HSBC. More specifically, the bank said, investors liquidated 880 tons of gold from ETF holdings last year, a reduction of one-third from the end-of-2012 peak. The liquidation so far this year is just 30 tons.

“We believe that many remaining ETF holders have adopted buy-and-hold strategies that will preserve the bulk of current holdings intact,” HSBC said. “This should steady gold prices. At the same time, net-long positions on the Comex, which were greatly reduced in 2013, have partially recovered. We forecast a small rebuilding of gold ETF and net-long positions.”

The bank looks for net central-bank demand of 400 tons this year after purchases of 344 in 2013. “Although below 2012 and 2011 record purchases levels, this is equivalent to one-sixth of world mine output, making central banks an important source of physical demand,” HSBC said.

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HSBC said China’s demand for imported gold was down 15% in the first half of this year, although the decline comes from unprecedented demand in 2013.

“Despite this (year-on-year) weakness, 2014 demand is on track to be the second-best year on record,” HSBC said. “We expect China to remain the world’s largest importer, consumer and producer of gold this year.”

HSBC added Indian demand “remains stifled due to high tariffs and burdensome regulations, but is showing evidence of recovering from weak 2013 levels.”

The bank said it looks for jewelry demand to reach 2,175 tons this year, which would be an 8% year-on-year decline. HSBC looks for coin and bar demand of 1,170 tons.

“We forecast that while demand is likely to remain down compared to 2013, gold consumption for both jewelry and investment will partially recover in the latter half of the year,” the bank 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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