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Publication of Thomson Reuters GFMS Gold Survey 2013

Gold Forecast To Overcome Recent Lethargy As Renewed Investment Drives The Price Back Over $1,800 Before Year-End

Thomson Reuters GFMS launched Gold Survey 2013 at events in London and Johannesburg. The following details some highlights from the briefing given at the London launch by Neil Meader, Head of Precious Metals Research & Forecasts at Thomson Reuters GFMS.

Gold Survey 2013 sets out GFMS’ medium term outlook on the gold price and this is that the metal should reach the mid-$1,800s before the end of the year - a projection that would lead to yet another rise in the annual average price and which comes off the back of 2012, the 11th consecutive year of higher prices and an all-time high in nominal terms.

GFMS anticipate that US developments will remain a key factor driving gold price movements over the course of 2013; whilst improved if still patchy economic data contributed to a softening of the gold price in recent months, the consultancy feels that the related negative overspill for gold is already priced into the market, and more importantly that there is a continued lack of confidence that ongoing debate, most immediately relating to budget cuts and further raising the debt ceiling, will smoothly arrive at satisfactory and timely resolution. Meader added, “gold is likely to remain very sensitive to US 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 programme until well into 2014 and so that should continue to underpin the gold price in 2013.”

The report also expects ongoing support from events in Europe, even if much of its economic outlook is largely priced in, as there remains significant potential for gold-friendly shocks, as evidenced by the price uplift seen in mid-March on the back of the situation unfolding in Cyprus.

Other factors cited include the maintenance of a low interest rate environment and some investors’ fears over the potential for inflation to become resurgent. The consultancy did inject some caution though, with Meader adding, “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”.

Turning to the market’s fundamentals, GFMS feel that a relatively sluggish supply side response to firm prices should provide support this year, having already done so in 2012. That year, mine production may have reached a record level of 2,861 tonnes in 2012, but the pace of growth fell notably relative to recent years as a consequence of the slower than expected ramp up of a number of significant projects, as well as the impact of the widespread strike action in South Africa. Furthermore, scrap 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 drove a drop in World Investment (GFMS’ measure of total investment), but it still rose in approximate value terms to a fresh record. Factors contributing to the slightly more restrained investment environment in 2012 included the relatively strong US 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. Investors were also encouraged by the continuing vigour of 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 near absence 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 jewellery demand.

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 felt to have earned the description ‘resilient’.

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