Yesterday we discussed market sentiment and mentioned the bearish forecasts that continue to talk down the gold price. Well these finally took their toll yesterday as the yellow metal handed back much of the gain that so impressed us in the run up to Monday morning.
It was generally a quieter day in the markets yesterday than normal on account of no US economic data releases. The gold price made gains on its five week highs early in the day however US selling soon brought some pressure with it.
In the latest Commitment of Traders report from COMEX, we can see that higher prices led to new buying and a significant increase in speculators’ net-long positions in gold futures and options. Whilst remaining bearish on the gold price, Barclays reported that ‘gross longs are at their highest since early November.’
LBMA forecasts
The London Bullion Market Association has released its forecasts for the year, having surveyed 28 analysts.
The LBMA said yesterday that the outlook for the 2014 gold and silver price is ‘broadly flat’ however there will be a ‘modest’ increase in platinum and palladium. Despite my dismissal of forecasts recently, the LBMA forecast is perhaps one that deserves slightly closer attention as forecasters surveyed have predicted a price correction long before the 2013 price decline.
The average forecast range for the gold price was $1,067 – $1,379. Analysts pointed to US tapering, weak inflationary pressures, possible ongoing ETF outflows and oversupply in the market. However physical demand from China and India is expected to underpin prices.
The average forecast trading range for silver was $16.37 – $23.94, prices are expected to come under some pressure due to ‘a large surplus supply in the silver market and industrial demand could be hit if global GDP growth is weak.’ Forecasters are concerned that this may lead to silver ETF holders liquidating their positions. Given the impact this had in the gold market, it is something to remain alert to.
Silver provides a good bridge to the industrial precious metals, platinum and palladium. Both are expected to do well this year as the potential growth in industrial demand. This is where silver might also benefit, ‘particularly the photovoltaic sector.’
For the industrial metal the LBMA’s survey forecasts both platinum and palladium to rise this year, with the former extending its premium over the gold price. The forecast rise in price will be underpinned by demand and disruptions In supply thanks to strike action in South Africa.
Equities take their toll on gold in 2014
Speaking of forecasts, economists at CIBC have said that rising investment flows into equities will take their toll on the gold price in 2014 but not to the same extent felt last year. The general market sentiment is, according to the bank, that a full economic recovery is on the card. For this reason equities still have some way to go. They do not believe that investors will be as aggressive in their investments of stocks in 2014 and may look to diversify their portfolios more which may help gold.
IMF revise growth forecasts
It’s only Wednesday but already it has been a week of forecasts. Yesterday the IMF revised its forecasts for economic growth in 2014 and reiterated their support for stimulus-led recoveries. Good news for Mark Carney. The majority of the forecasts were revised upwards. However, PIMCO’s CEO Mohamed El-Erian (soon to be ex-CEO) has warned that it is too early to celebrate an end to the economic turmoil, ‘there is a risk that, by tempting policy complacency, this year’s economic upturn could end up being counterproductive.’
The London Gold Fix
The London Gold Fix continues to make news stories. Last week it was the news that Deustche bank were withdrawing from the fixing process in an effort to distance itself from yet another financial scandal. Now Bloomberg reports that the other banks involved in the fix, and the greater London Gold Market are looking at ‘overhauling’ the system.
According to the Bloomberg source, the banks involved in the fixing process have formed a steering committee with the aim of seeking external advice as to how the (currently opaque) process can be improved.
There is yet to be an official statement from regulators and/or investigators on the gold fixing process, market participants continue to argue that the London gold fix tradition is ‘outdated, vulnerable to abuse and lacking in direct regulatory insight.’
The Japanese fear inflation…and buy gold
A statement out this morning from Japan’s biggest bullion retailer, Tanaka Kikinzhou Kogyo K.K., shows gold sales surged by 63% in 2013. This comes in the face of Prime Minister Abe’s desperate attempts to weaken the currency and inflate the economy.
According to the statement, sales exceeded purchases for the first time in four years. In 2012 22.9 tons were sold in the form of bars to local investors, in 2013 37.3 tons were sold.
The gold price drop was felt slightly less sorely by gold investors last year as the price fell by just 13% priced in yen. Volumes on TOCOM climbed by 5% last year, thanks to the weakened currency.