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Thomson Reuters GFMS Sees Gold Returning To Mid-$1,800s In 2013

By Kitco News
Thursday April 04, 2013 9:05 AM

(Kitco News) - Thomson Reuters GFMS said Thursday that it looks for gold to climb back to the mid-$1,800s before the end of the year.

If so, the consultancy said, this would mean yet another higher annual average price of gold, continuing what is already an 11-year run. However, the firm also said it looks for an improved macroeconomic backdrop to eventually trigger a bear market.

Thomson Reuters GFMS released its forecast while launching its Gold Survey 2013 at events in London and Johannesburg.

The report said that U.S. developments will remain a key factor driving gold price movements over the course of 2013. While improving but still patchy economic data contributed to a softening of the gold price in recent months, the consultancy said it feels this is already is already priced into the market. Meanwhile, there is a continued lack of confidence that ongoing debate over budget cuts and raising the debt ceiling will result in a satisfactory and timely resolution.

“Gold is likely to remain very sensitive to U.S. monetary policy, and even though we’ve had some hawkish noise from some within the Fed, it’s difficult to see a material unwinding of the QE (quantitative easing) program until well into 2014 and so that should continue to underpin the gold price in 2013,” said Neil Meader, head of precious metals research and forecasts at Thomson Reuters GFMS.

The report also expects ongoing support for gold from developments in Europe. Much of the continent’s economic outlook is largely priced into the market, but there “remains significant potential for gold-friendly shocks,” as reflected by a price uptick in mid-March as the financial crisis unfolded in Cyprus, the consultancy said.

Other supportive factors cited include a continued low interest-rate environment and some investors’ fears over the potential for inflation to become resurgent.

However, Thomson Reuters GFMS did offer caution for further into the future. “There’s arguably clearer light at the end of the tunnel in that we can perceive a return to something more like normality for the macro-economic backdrop, and that could easily entail the start of a secular bear market, perhaps in late 2013 or more probably in 2014,” Meader said.

Turning to supply/demand fundamentals, Thomson Reuters GFMS said that a relatively sluggish supply-side response to firm prices should provide support this year, as was the case in 2012. Mine production reached a record 2,861 metric tons last year, but the pace of growth fell notably from recent years due to a slower-than-expected ramp-up of a number of significant projects, as well as the impact of the widespread strike action in South Africa, the consultancy said. Furthermore, scrap supply eased fractionally in 2012, with near-market stocks having been notably depleted, and this meant that total supply fell.

On the demand side, losses in physical bar investment led to a drop in world investment, but it still rose in approximate value terms to a fresh record, Thomson Reuters GFMS said. Factors contributing to the “slightly more restrained” investment environment last year included the relatively strong U.S. dollar and the loss of upward momentum in the gold price. However, support continued from many investors remaining wary of conventional assets and through the persistence of negative real short-term interest rates in many countries, Thomson Reuters GFMS said. Investors were also encouraged by continuing vigorous demand from the official sector, which reached a 48-year high in 2012 as a broad base of central banks expanded gold holdings against a backdrop of a near absence of sales by Central Bank Gold Agreement signatories.

“Such support was certainly needed to overcome the reduction of 5% in total fabrication, which was largely due to losses in jewelry demand,” GFMS said. “These in turn were largely attributable to lower offtake in India. However, given price rises and a shaky economic backdrop, the performance of the global total was still…‘resilient.’”

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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