Investment demand is set to drive gold in the first half of the current calendar year, on loose monetary policies and burgeoning sovereign debt across global economies.
Global consultancy Thomson Reuters GFMS, in its latest Gold Survey 2012, forecast average gold price to rise to $1,800 an oz for the first half-year ending June 2013. According to Kitco.com, the forecast consists of a 6.7 per cent rise from the $1,686.85 an oz average recorded in the second half of 2012 and of a nine per cent rise from $1,650.80 an oz recorded in the comparable period last year.
Global broking firms, including Barclays Capital, have already forecast gold to hit $1,900 an oz this year on strong investment demand.
“In spite of growing market speculation that the decade-long bull run for gold could be over, GFMS remains positive on the price, forecasting gold to average an all-time high over the first half of 2013 and to recover back well into the $1,800s,” said Philip Klapwijk, its global head of metals analytics.
The yellow metal had seen a massive sell-off in the second half of the previous year, amid concerns on additional liquidity support needed in the context of the ‘fiscal cliff’ controversy in US government finances. Since US lawmakers have deferred their standoff for a quarter, the yellow metal remained resilient over the past month, moving in a narrow range of $20 to trade currently at $1,880 an oz in London.
In India, gold is trading at Rs 30,860 per 10g. Assuming the rupee remains around the current 55 to a dollar, another 10 per cent rise, as forecast by many analysts, would lead to gold hitting Rs 33,000 per 10g in the first half of this calendar year, which looks possible.
“Although there is now growing speculation around the structure and longevity of the (US) Fed’s QE (quantitative easing) programme, policies of ultra-low interest rates across 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,” said Klapwijk.
The Survey estimates many of the factors that had underpinned gold’s bull run till date remain in place and will return to the fore this year. Gold’s global investment 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 first half of 2012. The investment value was $48 billion in the first half as compared to $87 bn for the full 2012 calendar year. The latter represented an all-time high and, although in volume terms world investment was broadly steady year-on-year, this remained at a historically elevated level and was seen as critical for gold’s price strength during 2012.
The key drivers of this inflow into gold were similar to those expected to push the price higher this year, viz, concerns over growth in the major economies, their impact on central banks’ monetary policies and investor worry over sovereign debt levels.
Another reason investors remained largely pro-gold in 2012 was the boost to their confidence given by ongoing central bank buying of the metal. The official sector’s net purchases are estimated to have risen 17 per cent, to levels last visited in the mid-1960s. Demand in this segment was again driven by several central banks’ actions to moderate exposure to the major currencies. Therefore, large net purchases by the official sector will continue this year as well.