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Asian Investors Need To See Higher Gold Prices in 2015 Before They Buy More - ANZ

By Neils Christensen of Kitco News
Wednesday December 31, 2014 9:50 AM

(Kitco News) - Chinese demand for physical gold is expected to remain consistent in 2015, but prices need to move higher to attract new buyers to the market place, according to a commodity analyst from ANZ Bank.

Although volatility has been high in the last few months, gold prices are hovering near unchanged levels from where they started in 2014. After a year of stabilization, investors need to be confident that prices are on the rise before they jump back into the marketplace, said Victor Thianpiriya, commodity strategist at the Australian bank.

He added that the fundamental picture of the gold market could point to modestly higher prices in 2015.

“Gold has priced in a lot of the downside already,” he said. “If you have a long-term investment horizon then I think gold represents a good buy at this time.”

In the bank’s 2015 outlook report, published in mid-December, Thianpiriya said that they are expecting gold prices to average around $1,238 an ounce for 2015, an increase of more than 3.5% from Friday’s spot price, which was hovering around $1,194 an ounce.

“Our core view for gold and the precious metals complex is that the potential for a recovery in prices through 2015 is much better than it was this year, despite the expected lift-off of the U.S. Fed Funds rate,” Thianpiriya said in his report.

Thianpiriya explained that one of the reasons why gold imports, and demand to China, were low in 2014 was because there was already a significant build-up of reserves as a result of weaker prices in 2013. However, he is expecting Chinese imports to pick up in 2015 as most of the onshore supply has been reduced. “The pullback in demand over the past three quarters should put demand on a better footing through 2015,” he wrote.

Another positive for the Asian gold market for 2015 is the fact that the Indian government, in November, removed its import restrictions, which he adds should “significantly change the landscape” of the Indian market.

Thianpiriya said that they aren’t ruling out any new gold import regulations in India but as long as oil prices remain low, the government has some time to wait find the right balance. He explained that one proposal that sounds promising is gold quota restrictions.

“It creates a more even playing field in India, which even with restrictions would be good for the gold market,” he said.

Although Asian demand will continue to have a significant impact on the gold market, the U.S. dollar will be crucial to the price of the yellow metal in 2015, said Thianpiriya. Although the U.S. dollar will remain strong, the negative impact on gold should weaken throughout the year.

“The positive effects of a strengthening euro on the gold price may not be prevalent until the second half of the year,” he said in the report.

Another important factor gold investors will have to watch in 2015 is continued redemptions of gold-backed exchange-traded funds. Thianpiriya noted that redemptions have significantly decreased in 2014, compared to 2013. He added that this trend should continue next year.

“While we may not see ETFs add aggressively to holdings in 2015, a continued slowing of redemptions will be a positive factor,” he said.

Similar to the Asian market, Thianpiriya reiterated that for ETF markets, investors need to see higher prices before they start buying again.

By Neils Christensen of Kitco News nchristensen@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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