Gold retains position as haven for 2015

Business News of Tuesday, 6 January 2015

Source: Graphic Online

Gold1

Gold has retained its place as a safe-haven investment in 2014 despite the rising strength of the US dollar and turmoil elsewhere in commodity markets.

The price has remained stable experts believe that the long-term outlook for the precious metal is well supported this year.

The price of gold looks set to end the year almost unchanged on 12 months, closing last week at around US$1,175 (£755) an ounce after starting the year at $1,205. Fears of a crash in the price were overblown.

Goldman Sachs has now set its long-term forecast for the price of the yellow metal at US$1,200 an ounce for the next three years.

The investment bank estimates that this is the break-even price for the majority of gold-miners once all costs such as exploration, management and mine repairs are included.

As such, the price of gold may well fall below US$1,200 in the year ahead but lower prices would force loss-making miners out of business and reduce supply, helping prices to recover eventually.

Mark Bristow, the Chief Executive of FTSE 100 miner Randgold Resources, said “The [gold-mining] industry is clearly stuffed at US$1,140 and it will be a bloodbath at US$1,000.”

Hunter Hillcoat, from broker Investec’s natural resources team, has set a price forecast of $1,150 an ounce for next year. The Investec team sees a resurgence in the US dollar, rising interest rates and falling inflation as challenges for the year ahead.

The price of gold has an inverse relationship with the world’s reserve currency, the US dollar. A fundamental shift in American monetary policy this year has removed the main driving factor behind the price of gold during the past decade.

As the price of gold fell from a peak of US$1,900 in May 2011, investors reduced their holdings. Holdings in gold exchange-traded funds (ETFS), which allow investors to buy shares in a fund that tracks the gold price, have fallen in the past 12 months.

ETF Securities said that US$561 million of investor money had exited its gold funds in the past year, bringing total assets to US$9.6bn.

Demand for gold

Global demand for gold has been weak during the past three years. The latest figures from the World Gold Council showed year-on-year gold demand falling by six per cent in the three months ended in September. Jewellery demand declined by four per cent, while bar and coin demand slumped by 21 per cent in the third quarter of last year.

The longer-term outlook for gold demand remains stable. Jewellery purchases of 534 tonnes, which make up more than half of total gold demand at 929 tonnes, are supported by strong buying across India and China.

In India, demand jumped 60 per cent during the third quarter, according to the World Gold Council, and when combined India and China make up 54 per cent of global gold-buying.

The Reserve Bank of India unexpectedly removed rules on importers in late November that required them to sell 20 per cent of their shipments for re-export, the so-called 80:20 rule. The resurgent US economy is also fuelling global demand for jewellery purchases.

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