Gold price outlook and forecasts
The gold market is still finding its equilibrium after last year’s
price plunge, which ended a bull run. Investment demand,
which had fueled the rally for over a decade, is no longer
driving gold prices. A notable moderation in gold-exchangetraded
funds (ETFs) outflows has reduced downwards pressure
on gold. Yet Federal Reserve policy shifts to QE tapering and
signs of global disinflationary trends continue to discourage a
return of institutional investment gold demand.
Instead, we believe gold is being driven by physical demand for
jewelry, coins, and bars from China, in particular. Indeed, we
would argue that physical demand trends in the emerging world
will largely define gold’s price movements this year. China
alone is absorbing the equivalent of half the world’s gold mine
production. A possible recovery in Indian demand, should the
authorities reduce gold import tariffs, is potentially supportive.
We are leaving our average price forecasts unchanged, and
expect gold to average USD1,292/oz in 2014. More stable
prices should lead to lower levels of volatility. We update the 14
components of our supply and demand forecasts for 2014, and
expect a slight reduction in mine growth supply, weak increases
in scrap supplies, steady central bank demand, and ongoing
increases in jewelry, coin, and bar demand.