Gold will rise toward $1,850 an ounce by the end of this year as U.S. stimulus and debt concerns spur demand for a protection of wealth, before prices begin to drop as economic growth improves, Thomson Reuters GFMS said.
World investment fell about 1.8 percent to a four-year low in 2012 as bar and coin purchases slowed, GFMS, a unit of Thomson Reuters Corp., said in a report today. Central-bank buying at a 48-year high provided a “firm floor” for prices last year and will probably remain at a similar pace this year, it said. Global jewelry demand may weaken this year as recycling increases amid higher prices, the researcher said.
Bullion rallied the past 12 years and as much as doubled since 2008 after central banks increased stimulus to bolster economic growth. Prices slid this year on confidence that a recovery is strengthening and as some Federal Reserve policy makers debated the pace of debt buying. The International Monetary Fund predicts global expansion will climb to 4.1 percent in 2014, from 3.5 percent this year.
“Even though we’ve had some hawkish noise from some within the Fed, it’s difficult to see a material unwinding of the quantitative easing program until well into 2014,” Neil Meader, head of precious metals research at GFMS, said in a separate statement. “We can perceive a return to something more like normality for the macro-economic backdrop, and that could easily entail the start of a secular bear market, perhaps in late 2013 or more probably in 2014.”
Bullion for immediate delivery fell 7.3 percent to $1,552.78 in London this year. It averaged a record $1,669 last year and set an all-time high of $1,921.15 in September 2011. A close at $1,520.18 would be a 20 percent drop from Sept. 5, 2011, and the common definition of a bear market.
Prices slid 4 percent since March 21, when they reached a three-week high as delays to Cyprus’s bailout added to concern that Europe’s debt crisis may worsen. The Fed is purchasing $85 billion of Treasury and mortgage debt a month. Automatic federal government spending cuts, or sequestration, took effect at the start of last month and will trim $85 billion through September across federal agencies.
World gold investment slipped to 1,605 metric tons last year, the researcher said. The value still rose for a fifth straight year to a record of about $86 billion. Bar demand dropped 17 percent to 998 tons and official coin sales declined 18 percent to a four-year low of 200 tons in 2012, GFMS said.
Investors sold about 195.1 tons from exchange-traded products since holdings reached a record in December, data compiled by Bloomberg show. They now own 2,437.4 tons, equal to more than 10 months of mine production.
Total fabrication usage slipped for a second year in 2012, falling 5.3 percent to 2,613 tons, GFMS said. Jewelry demand decreased 4.2 percent to a three-year low of 1,893 tons last year as buying slowed in Europe and fell to a three-year low in India. China’s jewelry fabrication increased for a 10th straight year, rising 0.6 percent to a record 498 tons, the researcher said.
Central-bank purchases increased 16 percent to a 48-year high of 532 tons last year, GFMS estimates. It said the gross figure doesn’t include the increase in reserves reported by Turkey, which has been accepting gold in its reserve requirements from commercial banks. Buying may total as much as 150 tons each quarter this year, it said.
“Central banks in the developing world are expected to continue their moves into gold,” GFMS wrote in the report. Gold will “remain a useful means of reserve diversification and a hedge against currency debasement.”
Scrap sales dropped about 3.1 percent last year to a four- year low of 1,616 tons, even as recycling in India’s sub- continent region climbed to near a record, GFMS estimates. Above-ground global stockpiles, or the amount ever mined, reached about 174,100 tons by the end of last year, it said.
Mine output increased 0.8 percent to a record 2,861 tons in 2012, and will probably grow this year due to new mines and operation restarts, the researcher said. Peru overtook South Africa as the fifth-biggest miner last year, with China, Australia, the U.S. and Russia the top four producers. Gold producers’ all-in costs rose 12 percent to $1,211 an ounce, it said.
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