Gold prices finally fell in 2013

Metal gives negative returns after 12 yrs; analysts say it'll be subdued in 1st half of 2014, with a revival likely later

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Gold offered negative returns in 2013, the first such in 13 years, on a slowing in net buying by central banks, followed by weak investment demand.

A stronger dollar due to uncertainty in global economic growth also weighed on the metal. With the tapering in the US central bank’s quantitative easing (QE) programme set to reduce investible surplus in consumers’ hands, gold is set to remain subdued in 2014, too.

After 12 years of a positive run, the price fell 29.2 per cent in 2013 over a year before, to trade at $1,199 an ounce on Monday. The metal had posted a marginal negative return of 2.7 per cent in 2000, on  lacklustre investment demand.

The global economic uncertainty after the downturn in 2008 lifted the price to an all-time high of $1,900 an oz in the London spot market in August 2011. Since then, profit booking started picking up in both exchange-traded funds and individual households, intensifying the selling of scrap jewellery, and gold began losing lustre.

Most global investment banks forecast a subdued price. Goldman Sachs estimates $1,050 an oz; Standard Chartered, UBS and Commerzbank anticipate the yellow metal will end 2014 with an average price of $1,200-1,300 an oz. The price averaged  $1,412.85 an oz in 2013.

In rupee terms, gold posted a marginal three per cent decline due to a massive 12 per cent depreciation in the currency against the dollar. Gold was quoted at Rs 29,600 per 10g on Tuesday, as against Rs 30,490 per 10g on January 1 this year. The rupee was hovering at 61.80 to the dollar; it was 55 against the dollar in the comparative period.

“Gold could underperform in the first and possibly in the second quarter of this year as well, due to the impact of the Fed’s tapering. But, the metal might get support on lows, as the price has already reached the cost of production level. Any price below $1,200 an oz will force miners to cut production. Hence, a real supply issue will emerge possibly in the second half of 2014, where we can see resurgence in prices,” said Gnanasekar Thiagarajan, director, Commtrendz, a commodity broking firm. “In rupee terms, the price might decline due to renewed hope in the revival in dollar inflow, thereby resuting in appreciation in the rupee.”

The QE tapering will keep bullion prices under pressure. Easy liquidity was the key reason for the increase in gold prices over the past decade. The ongoing positive sentiment in global equity markets will also attract money and dampen the need to invest in safe havens like gold for the time being.

These sentiments could change in the second half of the year and central banks are expected to continue adding gold to their reserves once the fall has been priced in, since this is their long-term strategy. China’s gold market has also grown at an intense pace recently and the demand from other Asian countries is likely to add positive sentiment. The second half will also herald the festival season, which traditionally sees an uptick in gold sales.

Silver prices should also benefit from industrial demand, especially in the US and China, where economic growth is expected to pick up in 2014. Also, recent measures by the government in India to curb the demand for gold will lead to some demand shifting towards silver.

“Overall, we anticipate that bullion prices will correct and consolidate in the short run but strong demand will ensure recovery from the lower levels in the coming year. Gold can be accumulated around Rs 27,500 per 10g, with crucial support seen around Rs 25,000 per 10g at the Multi Commodity Exchange. At the  COMEX (New York-based) a $1,180-1,150 an oz range will offer good support. Silver can  be accumulated at Rs 38,000-40,000 a kg, with an eye on the crucial level of Rs 32000 a kg at MCX, for targets of Rs 55,000-57,000 a kg, while $18-17.50 an oz remains a good range to buy at COMEX,” said Jayant Manglik, president, retail distribution, Religare Securities.

Suresh Nair, executive director, ADMISI Commodities, believes the primary bearish factors likely to push gold prices lower in 2014 are US economic recovery, a stronger dollar amid the Fed’s tapering programme, minimal threat of global inflation and sluggish physical demand from traditional buyers such as India.