HSBC is keeping its 2014 average gold price forecast unchanged at $1,292 per ounce, the bank said, and sees the metal ranging between $1,120 and $1,390 this year.
Physical demand for jewellery, coins and bars from China and other emerging markets is now driving the price, it said in a note on Monday. And while ETF outflows have moderated, investment demand for gold remains tepid, it added.
“The gold market is still finding its equilibrium after last year’s price plunge, which ended a bull run,” chief precious metals analyst James Steel said.
Gold lost around 28 percent of its value last year in anticipation of the US Federal Reserve unwinding its stimulus measures and low inflation, against which gold has historically proved an effective hedge.
Investors sought better returns elsewhere, particularly in equities – the S&P 500 gained 26 percent last year and the DJ Euro Stoxx almost 23 percent.
Investment demand, which had fuelled the rally for more than a decade, is no longer the main driver of the metal, Steel also said.
Holdings backing SPDR Gold, the world’s largest gold ETF, rose 5.2 percent last month to 803.7 tonnes but this was the first monthly increase in more than a year.
“A notable moderation in gold ETF outflows has reduced pressure on gold; yet [US] Federal Reserve policy shifts to [quantitative easing] tapering and signs of global disinflationary trends continue to discourage a return of institutional investment gold demand,” he said. “Physical demand trends in the emerging world will largely define gold’s price movements this year.”
China alone is absorbing the equivalent of half the world’s gold mine production, he added, and a possible recovery in Indian demand, should the authorities reduce gold import tariffs, is potentially supportive.
Gold trading will be less volatile in 2014, HSBC also believes.
Spot gold was last at $1,346.90/1,347.75 per ounce, up $19.35 on Friday’s close and significantly higher than its close of $1,182 on the last trading day of 2013.
(Editing by Mark Shaw)