Physical demand for gold from China may offset the various bearish factors that currently cloud the market, Heraeus said.
The precious metals group sees gold trading in a range of $1,125/1,325 per ounce and averaging $1,230 in the first half of the year, a period when US interest-rate rises and further declines in oil prices are likely.
“Physical demand from China may offer compensation for the factors burdening gold in the coming months,” it said in a note on Tuesday. “A pickup in demand would be the logical consequence now – particularly now that the trend of shifting demand from west to east should continue.”
India’s lopsided trade balance will complicate gold imports and artificially lower demand despite the recent changes to import restrictions, Heraeus believes.
“In the course of the significantly falling oil price, India could achieve an easing of the balance and thus consider the import duties on gold more benevolently,” it said. “When the restrictions are softened official demand from India should pick up again.”
Still, increased demand from the two big consumers and other areas in Asia will not drive up the gold price from its current level of $1,240 but will instead offer stability.
Increased demand will be crucial to mitigating bearish factors clouding the market over the first half, Heraeus said, not least the prospective interest-rate increase in the US.
The conclusion of its third quantitative easing programme ended not only years of cheap dollar finance but also “one of the significant drivers of the yellow metal”, Heraeus said, adding that future interest-rate rises from the Fed are partly priced in after extensive discussion of the topic.
“However, the actual implementation would still have a signalling effect even if it would not severely burden the gold price in the medium-to-long term,” it added.
Safe-haven demand has improved, partly due to political unrest in Greece, but Heraeus expects these kinds of reactions to geopolitical or financial uncertainty remain moderate and will support the price only in the short-to-medium term.
Finally, primary gold production from mines should not further grow after peaking around 2,900 tonnes in 2014 because efficient production is rarely possible given the low prices, the firm said.
In other metals, Heraeus expects silver to trade in a range of $14.20-18.70 per ounce in the first half of the year and average $17. The metal was the weakest of all precious metals last year, falling about 20 percent.
“The weaker quotations should support the silver prices [due to] recovering demand for silver bars as well as silver coins resulting from the lower prices as well as a possibly increasing safe-haven character,” it said.
It expects platinum to average $1,270 per ounce in the first half, ranging between $1,125 and $1,395, on growing jewellery demand particularly in China and India, automobile industry consumption and new fuel cell applications.
Heraeus sees palladium averaging $840 per ounce, ranging from a low of $740 and a high of $900, predominantly due to growth in the US and in China automobile sectors.
(Editing by Mark Shaw)
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