Another bout of losses for gold yesterday and overnight and the metal is now within sight of the $US1,185 price it ended at in 2013 when the price slid 28%.
The price traded around $US1,214 on Comex overnight – the yellow metal’s price has been falling for the past three weeks, helped by the rising strength of the US dollar and the prospect of an increase in US interest rates sooner rather than later.
The close this morning in New York was yet another near nine month low.
But despite the gloom, and the belief the price will fall further over the remainder of this year, one leading analyst reckons there’s a chance of a mild boom in 2015, even though that’s when US interest rates are expected to start rising.
GFMS believes the gold price will bottom out during 2015 before embarking on a gradual bull market.
It sees the price averaging $US1,270 over calendar 2014, down from $US1,410 in 2013.
And as gold bottoms next year, GFMS sees a confluence of factors driving the price back up: increasing physical demand from emerging markets and rising inflation from central bank money printing.
Physical demand is "likely to experience a substantial resurgence in demand. This is likely to help to put a floor in place and longer-term forces, both in terms of physical fundamentals and economic and financial price drivers,” GFMS said.
It also predicting scarcer supplies in 2015. “The fundamental position will start to tighten during 2015 as underlying demand strengthens, taking the market into a deficit,” it said.
GFMS, which is owned by Thomson Reuters says it expects the price to average $US1,250 over the remainder of the year and with any fall toward $US1,200 sparking renewed physical demand from Asia and the Middle East.
If that’s true then we should now be seeing buying from these areas, but that doesn’t seem to be happening.
Asian buying has been less than expected so far this year.
GFMS said in an update to its 2014 gold forecast that Chinese jewellery fabrication demand had dropped 22% to 351 tonnes in the first half of 2014 as the industry worked through excess stocks in the buying frenzy of 2013 during the big fall in prices.
The soft economic conditions in China is also helping, along with the Communist Party crackdown on corruption and ostentatious lifestyles.
India saw retail demand fall 18% to 296 tonnes as measures introduced last year by the government to reduce the country’s current account deficit continued to weigh on demand.
US demand rose 8%, but overall GFMS sees physical gold buying, which includes retail, central bank and investment demand, falling 16% to 4,174 tonnes in 2014, from a record 4,957 tonnes last year.
Looking at supply fundamentals, GFMS notes that the lower gold prices are at last beginning to see a slowing in mine production, leading to a plateauing. But it still sees an increase in the current year as there are a number of new projects and expansions coming on line, having been initiated when prices were stronger.
Grades mined have been higher as a mines try to offset the revenue losses from the lower prices, through mining higher grade ores.
But GFMS believes this trend will disappear and we are likely to start to see a production downturn as uneconomic operations are closed or curtailed.
GFMS sees 2014 as the cyclical top for gold mine production.
The only problem with the GFMS forecasts is that it was written before the price falls of the past 10 days, so it looks a bit out of date.
But gold bugs will hang onto the hopes of a revival next year.
They should watch the value of the US dollar, should it continue to rise, gold (and sliver, which crashed last Friday night in New York), will be going lower.
