A few days ago, Thomson Reuters released its Gold Survey 2015, looking at the developments in the global gold market and the future of the gold prices. What are the main conclusions from the report?
Since we have already summarized the last year’s developments in the gold market, we are going to focus on the price outlook for 2015. Last year, demand fell a few percent due to over-purchasing in 2013 and the lack of confidence in any near-term price recovery. There are some signs that the confidence is starting to return, as the physical market has been taking comfort from the price stabilization since November 2014.
However, the GFMS team expects the gold prices to fall closes to $1,100 per ounce before rebounding towards the end of year and picking up in 2016, with gold to average $1,170 this year and $1,250 in 2016. For 2016, it forecasts modest strength due to an increase in buying in the Asian markets.
Other bullish factors for the gold prices include the continued prevalence of quantitative easing programs outside the U.S., the underlying geopolitical risk in Eastern Europe, the Middle East and the South China Sea, as well as the rise of risk-aversion. Persistent concerns over the global economic recovery may fuel some safe-haven demand for the yellow metal.
According to the Thomson Reuters, jewelry consumption is likely to grow at a modest pace, but retail investment in bars and coins is unlikely to return to the peaks we saw in 2013. The company believes that official purchases will remain strong in 2015 (at 75-100 tons per quarter), mostly in emerging markets due to diversification motives. For the supply side of the market, the GFMS team expects the continuation of a constrained investment environment, flat mining production in 2015 and a decline in 2016.
The U.S. monetary policy will remain a central focus over the course of 2015. The expectations of an interest rate hike and a stronger greenback have already caused some loose-handed holders to get out of the gold market; however there is still the possibility of short-side sales in response to any unsettling news or economic developments. Given the divergences in monetary policies across the world, the U.S. dollar is likely to retain currency supremacy and exert some downward pressure on the gold prices; however the gold prices expressed in other currencies are going to rise.
The GFMS analysts said that investors should remember that the timing of hiking of the interest rates will probably be less important than the policy that will follow. For example, if the Fed hikes sooner, but the policy is more dovish, that could still be supportive for the gold prices.
To sum up, according to Thomson Reuters, 2015 will be another year of a relative stabilization of the gold prices, with a modest rebound in 2016. The key factor in 2015 will be U.S. monetary policy. The Fed’s tightening actions have been to some extent discounted in the gold prices, however higher interest rates and a stronger greenback will be a headwind for the gold market. On the other hand, a pickup in the Asian demand for physical gold will provide a significant support for the gold prices. A lot of depends on the investors sentiment and risk appetite. Currently, the investors’ confidence about the U.S. economy is relatively high, but the stream of negative data on the domestic and global recovery may change their attitude towards safer investments, like gold, the ultimate safe-haven.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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