Rising investment demand to drive gold price in 2013

GFMS forecast 6.7% rise in average price in H1

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 firm Thomson Reuters GFMS in its latest Gold Survey 2012 forecast average gold price to rise to $1800 an oz for first half year ending June 2013.

According to Kitco.com, the forecast consists of 6.7% rise from the level of $1686.85 an oz average price recorded in the second half of 2012 and over 9% spurt from $1650.80 an oz the yellow metal had 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 $1800s,” said Philip Klapwijk, Global Head of Metals Analytics at Thomson Reuters GFMS.

The yellow metal, meanwhile, witnessed a massive sell off in the second half of the previous year amid concerns of additional liquidity support in the form of “fiscal cliff” by the government of the US. Since, the US lawmaker deferred this proposal for a quarter, the yellow metal remained resilient over the last one month moving in a narrow range of $20 to trade currently at $1880 in London.

In India, however, gold is trading at Rs 30860 per 10 grams. Assuming that the rupee remains at around the current level of 55 against the US dollar, another 10% increase, as forecast by a number of analysts, would lead to gold hitting Rs 33000 per 10 gram in the first half of the current calendar year which looks a possibility.

“Although there is now growing speculation around the structure and longevity of the Fed’s QE programme, 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,” said Klapwijk.

The Survey estimates that many of the factors that have underpinned gold’s bull run to-date remain in place and will return to the fore this year.

Gold’s global investment is forecast to rise by just over 20% in volume terms and almost
30% in value terms in comparison to the first half of 2012. The investment value achieved at $48 billion in the first half as compared to $87 billion 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 as identified in the report were similar to those expected to push the price higher this year, namely concerns over economic growth in the major economies, its impact on central banks’ monetary policies, and investor worry over sovereign debt levels.

Another reason that 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 by 17%, to levels last visited in the mid-1960s.

Demand in this segment of the market was again driven by several central banks’ actions to moderate exposure to the major currencies, particularly in light of ongoing loose monetary policies and last year’s escalating sovereign debt concerns. Therefore, large net purchases by the official sector will continue this year as well.

Month	$(Oz)
January	1,656.12
February	1,742.62
March	1,673.77
April	1,650.07
May	1,585.50
May	1,585.50
June	1,596.70
H1 average	1,650.80
July	1,593.91
August	1,626.03
September	1,744.45
October	1,747.01
November	1,721.14
December	1688.53
H2 average	1686.85
Source : Kitco.com