The environment for gold investment “remains very positive into 2013” with prices forecast to reach an all-time high in the first half of this year, according to the Thomson Reuters GMFS Gold Survey – Update 2, which presented in Toronto this week.
The survey, which is widely recognized as the most authoritative source of information on the international gold market, provides analysis of developments in the market and statistics on the main gold trading, consuming and producing countries.
Presented on January 16 by Thomson Reuters GFMS global head of metals analytics, Philip Klapwijk, the gold survey highlighted the market's fundamentals for calendar 2012, and provided a forecast for the first half of 2013, ahead of the 2013 survey that will be released in April.
Klapwijk noted that GFMS expects that, in spite of growing market speculation that the decade-long bull run for gold could be over, gold will average an all-time high over the first half of 2013.
“We think we could get a touch of $2,000 (per ounce) this year,” he said, adding that it is expected gold will settle in at about the $1,775-per-ounce range in the first half of 2013, “which is a bit more aggressive than the consensus”.
Klapwijk added that many of the factors that have underpinned gold's bull run to-date will carry over into this year.
“Although there is now growing speculation around the structure and longevity of the Fed's QE (quantitative easing) program, policies of ultra-low interest rates across the western economies will persist in 2013.
“This will continue to support investor interest in gold in the absence of low risk investments that can offer acceptable yields.”
Klapwijk said that GFMS believes there is “very little chance” that the US Federal Reserve will discontinue its quantitative easing efforts in 2013.
“Even if the unemployment rate drops at its current rate, it would take until November 2014 before they hit the 6.5 per cent threshold,” he said, referring to one of the stipulations that would need to be met before the Fed will discontinue its bond-buying program.
World Investment in 2013 is forecast to rise by just over 20 per cent in volume terms and almost 30 per cent in value terms in comparison to the gold survey’s report of 1,164 tonnes and $87 billion in 2012 - an all-time high.
Additionally, the report predicts that gold supply for the first half of 2013 will rise by 3.6 per cent as mine production is expected to have “a stronger tone” with 1.5-per-cent growth and old scrap supply is forecast to grow by 7.5 per cent.
Looking back on 2012, Klapwijk said that the U.S. dollar gold price averaged $1,668.98 an ounce, noting that the rise of 3.7 per cent for the year was disappointing, but the 6 per cent increase from prices at the end of 2011 was “somewhat better”.
Total gold demand in 2012 fell 0.7 per cent, as physical bar investment fell a sharp 19.7 per cent, but demand decline was helped by “the resilience of jewellery demand” which declined by just four per cent.
“India was a standout,” said Klapwijk, noting that the jewellery fabrication in the country was down “very substantially” and accounted for 85 per cent of 2012’s total decline.
However, he noted that 2013 may be a turnaround year for India, as many days in its 2013 calendar are believed to be very “auspicious for marriage”, so there is expected to be a rise in the number of weddings, leading to higher demand for gold jewelry.
Also of note was a drop in Chinese jewellery fabrication - “their first decline in many years”, according to Klapwijk, as growth in the nation begins to even out and markets are beginning to become more mature.
When looking at supply in 2012, Klapwijk said a 0.7 per cent decline in global gold supply was a “surprising outcome” given the rise in gold prices.
Additionally, he said that mine production – which was “essentially stagnant” in 2012 - saw a gain of just six tonnes year-over year, as big producers like South Africa and Indonesia declined sharply. South Africa was negatively affected by wide-spread strikes last year.
Meanwhile, Klapwijk said production has grown markedly in China and Russia as well as Mexico – which he called “an interesting producer”.
He also said that producers' hedging activities remained on the sidelines for the second year, as investors demand companies keep gold sales unhedged.
Looking ahead, Klapwijk said that he thinks a potential downgrade of the U.S. credit rating is an important factor in the year-ahead for gold, as it would boost investment in the yellow metal.
“This has been very underplayed by the analytical community,” he suggested.
Gold futures for February delivery were trading higher Thursday, up $4.40 as at about 12:18 p.m. EDT, at $1,687.60 an ounce on the Comex division of the New York Mercantile Exchange.