The gold market saw an "explosion of grass roots demand" after the nasty April price dip, but growing consumer inventories throughout traditional gold-buying regions indicate dwindling consumer demand as we head towards 2014, according to the Thompson Reuters GFMS Gold Survey 2013 – Update 1.
As a result of geopolitical tensions, more US debt-ceiling drama, persistent high US unemployment, and buy-side recovery from professional investors, the survey sees gold making a move to $1,500 by early 2014, but anticipates that as some of these factors fade, gold will settle in at an average of $1,350 over the 2014 calendar year.
In addition to the price outlook for the rest of 2013 and 2014, the survey provides a nice summary of the gold market roller coaster ride we've been on for the first eight months of 2013:
From their peak at the start of the year through to early August, Exchange Traded Fund (ETF) holdings fell by 26% and this, coupled with the withdrawal of momentum-driven money, contributed to a 30% intraday price decline from the high of $1,696/oz in January to a low of $1,181/oz at end-June.
The price fall triggered a huge leap in physical bar-hoarding and coin demand, while also marking a possible end to the decade-long substitution away from gold in the jewellery market.The first half of 2013 saw an increase of more than 550 tonnes of gold offtake in jewellery, investment bars, coins and medals. This helped to reverse the price fall, prompting a recovery towards $1,440 by end-August.
The rebound in demand was widespread, through the Middle East and South and East Asia, and highlighted the Indian government’s continued concern about the contribution of gold imports to the country’s trade deficit. This year looks set to be the first year in modern times when China will overtake India as the metal’s number one consumer, by as much as 100 tonnes.
Gold movements have also been heavily affected by monetary policy particularly in the United States. Now, however, professional investors have priced in the tapering of monetary stimulus and the private buyer is centre stage. The counterbalance between physical and professional demand will help to give gold some renewed relative price stability to refresh its appeal as an asset class to longer-term investors as a portfolio balancer.
Read the full survey here.