Thomson Reuters GFMS sees a rebound in the gold market starting from later this year and into next year on improved buying in Asia and from institutional investment.
A pick-up in these markets should offset the recent decline in over-the-counter demand in the West, the consultancy said in its Gold Survey 2015 on Thursday.
It expects gold prices to slip closer 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
Demand and dollar prices will continue to build a base for the precious metal, it added.
“While US monetary policy will remain a central focus over the course of 2015, investors are already discounting a return to a rising interest rate cycle (albeit gradually) and it is arguable that loose-handed holders are out of the market,” it said in the report.
But this does not signal higher prices, which instead require fresh investment activity while there remains the possibility of short-side sales in response to any unsettling news or economic development.
“Once the new rate cycle is in place (or signalled), asset reallocation is likely to commence and we expect gold to benefit accordingly,” it said.
The official sector should remain a source of demand for gold over the medium term – in 2014 gold transactions in the sector amounted to an estimated net purchase of 466 tonnes, up 14 percent from 2013 and the second highest level since the end of the gold standard.
The renewed eastward shift in physical gold demand stalled last year but is expected to resume while markets continue to stabilise, GFMS said, providing fresh stability in the near-to-medium term.
Jewellery demand, excluding China, has remained robust, increasing six percent in 2014, and will continue to grow at a modest pace this year, GFMS forecasts.
Overall investment demand was the fifth highest on record despite year-on-year contractions. The retail coin and bar market was hit hardest, slumping 40 percent year-on-year, driven particularly by the Asian markets.
Elsewhere in the investment sector, ETF holdings continued to fall albeit at a much slower rate than in 2013.
Meanwhile, the gold mining sector continues to struggle – GFMS sees flat output this year before a palpable decline starts.
Corporate activity in the gold mining industry continued to decline in 2014, with aggregated deals amounting to just $7.3 billion, around nine percent lower than in 2013.
Miners are focused largely on rationalising existing portfolios and strengthening balance sheets by reducing debt levels while deteriorating sentiment drives increased efficiency, it said.
While hedging at 103 tonnes was at its highest since 1999, GFMS does not believe that this is a turning point to widespread hedging activity while it remains confined to a small subset of producers.
This year may see net hedging but probably on a comparable scale to that of 2014, it said.
(Editing by Mark Shaw)
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