Gold to average $1,170 per ounce in 2015

Otmane El Rhazi from The Bullion Desk.

A swing to a gold market surplus this year will weigh on prices as will a strong dollar and uncertainty about the effect of monetary easing around the world, GFMS said.

It sees total supply in the first half of 2015 at 2,053 tonnes against demand of 1,957 tonnes, it said in its latest gold survey report.

It sees the metal averaging $1,170 per ounce in 2015, with a first-half average of $1,180 and a second-half average of $1,160.

Despite commitments by the central banks of Japan, China and European to further easing measures, a positive effect on precious metals prices in 2014 based on these measures was absent, it also said.

“In fact, any meaningful influence on precious metals prices seems to be mainly stemming from monetary policy discussion at the Federal Reserve,” it added.

GFMS instead expects price movements to be dictated by the expectation that the Fed will start raising rates in mid-2015, depending on the progress in the labour market and inflation expectations.

It also highlighted a potential risk via the financial crisis in Russia, where a slump in oil prices and western sanctions has pushed the rouble to all-time lows against the dollar.

While gold is only a small portion of Russia’s assets, there is a possibility the central bank may sell the metal after liquidating more of its FX holdings.

While it did so in 1998 at 118 tonnes, a repeat is unlikely this time, GFMS said. If it were to do so, it would trigger a knee-jerk downward reaction in the gold price.

Many of these gold-bearish factors became increasingly visible last year, prompting GFMS to set its long-term projection at $1,100 per ounce.

Finally, from a technical perspective, GFMS expects the price to bottom out this year it is looking for a second-quarter average of $1,125 per ounce followed by a second-half average of $1,160 “as we enter the sell the rumour buy the fact environment with respect to interest rates coupled with improving fundamentals”.

“With price-elastic buyers partially side-lined in 2014, we expect fresh pent-up demand later this year to give price support and start to reverse the prevailing bear market. For now, though, dollar strength and uncertainty over monetary policy will mean that cash remains king,” it also said.

(Editing by Mark Shaw)

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