Gold prices to remain under pressure next year too

Gold prices in the global market are likely to remain under pressure and rule below $1,200 an ounce next year, a global convention was told here.

“We expect gold prices to remain low next year too. Once gold slips below $1,200, it could head towards $1,175. The positive thing about the fall is that physical buying could emerge once prices drop to $1,200 levels,” said Cameron Alexander, Manager, Precious Metals, Thomson Reuters GFMS, at a price outlook session at the 11th India International Gold Convention – 2014.

Chinese buying However, prices could look up later this year and could even rise to $1,300 levels. This will be because there could be some buying in China and India, particularly during festival and marriage season.

“I think the Chinese government will encourage its people to buy gold but it could ensure that prices are under control,” he said. The outlook for gold is not bright next year because a surplus is seen in the yellow metal.

According to Alexander, gold surplus could be 26 tonnes against a deficit of 87 tonnes this year (see table).

Slack demand Retail investments are down globally by half, while demand for jewellery also dropped in the first quarter, he said. Demand in the Far-East and India was particularly low, he said.

According to the bullion industry, domestic demand for gold is slack in view of gold prices dropping. Gold imports till now are about 460 tonnes and they will continue at 30-40 a month until the year-end. Last year, imports totalled 650 tonnes against over 900 tonnes in 2012.

Jeremy East, Managing Director, Standard Chartered Bank, also said gold prices could tend to rise towards the year-end. “Physical market will be a lot interesting next year in China and India, particularly if the US economy recovers,” he said.

Jeffrey Rhodes, Chief Executive Officer, Bullion Trading Centre, said that the bull market in gold ended when it went past $1,800.

“Next year for gold will be another one of volatility. Prices could range between $1,100 and $1,400 but will be in the $1,200-1,300 for a long time,” he said, on the sidelines of the meet.

Rhodes said that the physical market will flourish next year in Asia since “the people in the continent love lack of volatility.” Alexander, East and Rhodes pointed out to the lack of any rise in gold prices despite the simmering tension in Europe due to Ukraine crisis, the Iran-Iraq standoff and the capture of key areas in Syria and Iraq by a rebel group.

“Gold has been enjoying a premium of $60. This got discounted during the crises,” said Alexander.

“Other asset class, particularly equities, are much more promising now than gold,” said East.

The writer was in Pune at the invitation of India International Gold Convention.