Gold prices bottomed out in local currencies, may fall further in dollar terms: survey

The GFMS Gold Survey sees demand improving and so prices, which could average to $1,170 in 2015 and $1,250 in following year

Gold prices could fall further in the US, but, for other countries, in terms of their local currencies, gold has bottomed out, shows the GFMS Gold Survey 2015.

The survey, released on Thursday, says, “There are signs that confidence is starting to return, however, as the physical market adjusts and takes comfort from the price stabilisation since November 2014.” Most investors have discounted gradual increase in US interest rates. However, the survey sees demand improving and so prices, which could average to $1,170 in 2015 and $1,250 in the following year, the survey says.

“The dollar is likely to retain currency supremacy, given monetary policy elsewhere in the world, and non-dollar-denominated gold prices are believed to have bottomed.” In dollar terms, however, the GFMS team at Thomson Reuters, “is looking for further slippage towards $1,100 per ounce during 2015, with an annual average of $1,170 per ounce in 2015, with prices rising towards year-end; this should lead to an average of $1,250 per ounce in 2016, as buying picks up in Asian markets and institutional investment in these markets offsets the recent decline in over-the-counter demand in the West.”

The reasoning behind bottoming out of prices in local currencies is that a strengthening dollar would result in depreciation of other currencies and, hence, even if gold  slips further in dollar terms, depreciation in other countries’ local currency would not let the dollar price to fall much.

Like most markets, gold also takes time to recover from periods of turbulence and, in early 2015, it is continuing the stabilisation of 2014 following the hurricane that swept through it in the previous year.

For gold prices to go up, there is a need for fresh investment. Hence, the survey sees possibility of further shorts in gold.

“Indeed, there is still the possibility of short-side sales in response to any unsettling news or economic development. Once the new rate cycle is in place (or signalled), asset reallocation is likely to commence and we expect gold to benefit accordingly,” the survey says.

Official sector gold transactions in 2014 amounted to an estimated net purchase of 466 tonnes, up 14 per cent from 2013 and the second highest level since the end of the gold standard. The renewed eastward shift in physical gold demand (following the westward lurch following the start of the financial crisis) stalled last year, but is expected to resume as the markets continue to stabilise.

A study conducted by StratWon Business Consulting for Platinum Guild International (PGI) showed the growth in platinum sales at 28 per cent in 2014. Sales by PGI’s strategic retail partners were up by 33 per cent during 2014 while other outlets reported a growth of 19 per cent.“Given the overall market scenario, the platinum growth for 2014 has been very positive and consistent which comes from continuous improvement of consumer sentiment, higher conversion at the retail stores and improving the disposition for platinum among our key target audience. With the launch of Platinum Evara on the back of strong consumer research at the end of the year we are looking at further accelerating growth. The initial response to this new category has been very positive,” said Vaishali Banerjee, country manager India, PGI.

The jewellery fabrication business has increased six per cent in 2014 globally, except in China. The result of the massive surge in jewellery demand in China in 2013 was a fall of 35 per cent in Chinese jewellery consumption and 31 per cent in local jewellery fabrication last year. Even so, the Chinese jewellery fabrication in 2014 was seven per cent higher than in 2012 and the second highest on record. Heavy leasing activity in the local market has led to suggestions that retail demand was much higher than was actually the case. India, despite import restrictions, reached another record in both fabrication and consumption terms, reflecting the determined affinity of the people for gold. China and India together accounted for 54 per cent of the world’s jewellery, bar and medal demand in 2014.