In its latest Gold and Silver Mining Focus publication, the consultancy forecasts the yellow metal is unlikely to trade much higher than $1,375/oz during the course of the year, and says that further price weakness seems likely from current levels, adding it “would not rule out a brief drop to around $1,100.”
The main reason for this, the consultancy says is the continued disinterest in gold being shown by western investors.
While it believes that the major liquidations are behind us as the main slice of the so-called “long overhang” has now been exited, it says “it is hard to see western institutional investors becoming excited in the short term about the yellow metal”.
And, it adds: “information gathered from our field research suggests that there are enough “reluctant” longs held by investors who are looking for an opportunity to exit the market”. This, it says, is likely to act as a cap for the price.
On the other side, those remaining longs, Metals Focus says, are now in what it considers to be “strong hands” which are unlikely to sell out in the near future.
As reasons behind this lack of interest on the part of western investors, Metals Focus points to the Fed’s ongoing reduction of its bond purchase programme, “easing concerns” about the fiscal position in both Europe and North America, continued low inflation levels and what it believes will be the eventual de-escalation of tensions in the Ukraine.
While the group does not rule out a short drop below the $1,100/oz level during the year, it does expect support for prices to come from continued strong physical demand, particularly from China and India.
While it says it is unlikely that Chinese buying will improve upon the records set in 2013, “a still relatively stable economic backdrop, which will not only boost discretionary spending but also encourage jewellery brands to expand outlets” is set to keep demand strong.
Over in India, it says, conditions have become a little more positive.
“Even though any change to the import regulations will not come before mid-May, there are signs that official imports are now working more effectively (while unofficial flows have also picked up). Also, with an improving economy and a fall in the current account deficit, this could benefit the Indian rupee. All these factors should help lift gold demand in the second half of 2014.”
