London: Gold should stay mired at lower levels in 2014 after posting its first annual loss in more than a decade this year when investors, emboldened by an improving global economy, sliced holdings, a Reuters poll showed on Thursday.
Prices are unlikely to see significantly more weakness from current levels however as heavy liquidation by investors slows, analysts said.
The poll of 22 analysts conducted this month returned an average forecast for gold prices in 2014 of $1,322.50 an ounce.
That is close to spot gold’s current level of $1,335 an ounce, and not far from the average forecast returned for the fourth quarter of $1,325 an ounce.
Physical markets are expected to offer some support, with lower prices seen boosting jewellery demand and curbing scrap supply, while the flow of newly-mined gold may be reduced as prices fall towards the cost of production.
“The structure of the gold market is already changing -prices are lower, jewellery demand is picking up again, we have less scrap supply,” Credit Suisse analyst Tobias Merath said. “But investment is still an essential part of the market, and with that not really picking up, we think the risks are still for prices to turn a bit lower.
“But (those risks) are not as big as they used to be in the past, when investment demand was nearly one third of the market,” he added.
Gold prices are expected to average $1,420 an ounce this year, up from a forecast of $1,410.75 an ounce returned in a similar survey three months ago.
Gold fell to a near three-year low of $1,180.71 an ounce in June as investors liquidated holdings of products like gold-backed exchange-traded funds, largely on speculation that the Federal Reserve was set to taper its monetary stimulus measures.
Gold ETFs tracked by Reuters have seen outflows of 675 tonnes this year.
Although expectations for stimulus tapering have been pushed steadily back - particularly after this month’s two-week shutdown of the US government — gold is still down more than 20% this year.
While investors currently have little incentive to buy gold, there are also few pressures to sell, analysts said.
“What we don’t have are signs that rapid inflation is coming in the West. Even if QE continues in the United States, it is unlikely to lead, short term to substantial inflation,” Mitsui Precious Metals analyst David Jollie said.
“(But) we don’t know the longer term impact of QE yet, so there are still plenty of questions out there. In that environment, if you haven’t sold gold on a $600 fall, why would you sell it now?”
Indian demand, curbed this year by a series of of import duty hikes aimed at reducing the country’s current account deficit, is expected to recover next year, while Chinese demand is seen rising. That is likely to underpin prices.
“We’ve already seen the impact of the Indian restrictions, and we probably won’t see any more tightening there,” Jollie said. “Assuming that the Chinese economy keeps expanding, you’d expect to see Chinese buying remaining strong.”
Silver prices are expected to average $22 an ounce in the final quarter of the year — against $21.32 an ounce in the third quarter — bringing this year’s average price to $24.10 an ounce, the poll showed.
So far this year, silver has averaged $24.57 an ounce. Next year silver prices are expected to post another annual decline, to $22.30 an ounce.
“Investor demand is expected to remain the most important driver for silver prices,” Natixis said in a report on the metal. “Currently around 20,000 tonnes of silver is held in physically backed ETPs, a substantial amount.”
“Were investors to move out of silver to a similar extent as happened in gold during (the first half of) 2013, this raises the prospect of significant downside risks.” REUTERS