The precious metals should find better support in 2015 when the strength of the US dollar will wane and the physical gold consumers in emerging markets will return, ANZ Research said.
It sees gold averaging $1,238 per ounce during 2015 while silver should rebound with more force to average a price of $19, the bank said in a research note on Monday. This will bring the gold/silver ratio back towards the long-term average of 60 from its current level of 75,
“Heavy selling over 2013 and early 2014 appears to be abating, with key COMEX investors showing signs of re-entering at lower price levels. Market drivers could also swing from a heavy focus on the US monetary setting to the re-emergence of strong Chinese and Indian demand,” the bank said.
Spot gold was last $2.50 higher than Friday’s close to $1,196.50/1,197.10 per ounce – it has traded in a sub $9 intraday range either side of the $1,200 pivot level, peaking earlier at $1,203.50. Silver at $16.05/16.10 was unchanged.
Strong demand in the second half of 2013 and into 2014 resulted in a significant build-up of stocks in mainland China, ANZ said. This resulted in subdued levels of imports in the second half of 2014 that helped run down these onshore stocks.
The pullback in demand over the past three quarters should put bolster demand next year, it added. With supply and demand in China looking largely balanced in the fourth quarter, the necessary adjustment in the market seems to be taking place.
Elsewhere in Asia, the decision by India’s government to ease import restrictions on gold – it repealed the 80:20 rule that made it mandatory for 20 percent of all imported gold to be re-exported with added value – was a surprise.
“This has significantly changed the landscape for the market in India, opening up all import channels once more,” the bank said. “But it should be noted that the government is unlikely to maintain the status quo.”
“There are likely to be other restrictions placed on the market, perhaps import quotas or the like. Also, smuggling is likely to remain an issue as long as the 10-percent import duty remains,” the report said.
A reduction in gold ETF sales will also be needed to stabilise the market – the outlook for the dollar, one of the main long-term drivers of the gold price, is crucial.
The greenback has given back a small portion of its gains against the euro – it was last indicated around 1.2264, having hit 1.2227 on Friday, its highest since July 2012.
“We expect that over the course of 2015, this negative influence [of a stronger dollar] will wane,” ANZ said. “Furthermore, we also expect that as the financial impetus for ETF selling (a strengthening dollar) fades through second half 2015, this should alleviate the pressure to liquidate physical gold holdings by investors.”
For silver, industrial demand should remain robust in 2015 – prices are expected to remain relatively soft on a long-term basis, the bank said.
Jewellery demand could hit a record in 2015, reflecting the substitution of silver for gold in India, although ANZ advised keeping a close eye on the country’s demand dynamics.
Still, silver prices should rise relative to gold. With the ratio between the two stretched so far, it has significant room to gain on gold prices, the bank suggested.
And although platinum and palladium prices are unlikely to reach this year’s highs of $1,500 and $900 in the absence of additional supply shocks, “the potential for the market to find a base and rise through 2015 on the back of better demand conditions remains high,” it said.
Platinum at $1,196/1,201 was up $1 while palladium fell $2 to $802/807.
Platinum’s sharp sell-off in recent months suggests there is more room to rebound on improving demand for vehicles, particularly in the US and Europe. And both metals should benefit while both markets are vulnerable to industrial action.
Palladium will be in deficit by an estimated 500,000 ounces while the deficit in platinum will be around half that figure, ANZ said.
(Editing by Mark Shaw)