Gold prices bottomed out in local currencies, may fall further in dollar terms: survey

London (Apr 9)  Gold prices could fall further in US but for other countries, in terms of their local currencies for most part of the world, gold has bottomed out. This was disclosed by the GFMS Gold Survey 2015 released today.

The survey states, "There are signs that confidence is starting to return, however, as the physical market adjusts and takes comfort from the price stabilisation since November 2014." It said that most investors have discounted gradual increase in US interest rates. However, the survey sees demand improving and so prices, which could average to $1,170 in 2015 and $1,250 in following year.

It pointed out that "the dollar is likely to retain currency supremacy, given monetary policy elsewhere in the world, and non dollar-denominated gold prices are believed to have bottomed". In dollar terms, however, the GFMS team at Thomson Reuters, "is looking for further slippage towards $1,100/ounce during 2015, with an annual average of $1,170/ounce in 2015, with prices rising towards year-end".This, the survey avers, should lead to an average of $1,250/ounce in 2016 as buying picks up in Asian markets and institutional investment in these markets offsets the recent decline in Over-the-Counter demand in the West.

The reasoning behind bottoming out of prices in local currencies is that strengthening dollar would result in depreciation of other currencies and hence even if gold price slips further in US Dollar terms, depreciation in other countries' local currency would not let dollar price to fall much.

Like most markets, gold also takes time to recover from periods of turbulence and in early 2015 it is continuing the stabilisation of 2014 following the hurricane that swept through it in the previous year. Demand contracted sharply in 2014 as some key regions, notably China, suffered from over-purchasing in 2013, while lack of confidence in any near-term price recovery deterred investment purchases elsewhere while investors have discounted gradual increase in rates, said survey,

For gold price to go up there is a need for fresh investment activity and the survey sees possibility of further shorts in gold. The survey states: "Indeed there is still 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".

Official sector gold transactions in 2014 amounted to an estimated net purchase of 466 tonnes, up 14% from 2013 and the second highest level since the end of the gold standard. The renewed eastward shift in physical gold demand (following the westward lurch following the start of the financial crisis) stalled last year, but is expected to resume as the markets continue to stabilise.

Jewellery demand, excluding China, has remained robust

World jewellery fabrication- excluding China - actually increased by 6% in 2014. The result of the massive surge in jewellery demand in China in 2013 was a fall of 35% in Chinese jewellery consumption and 31% in local jewellery fabrication last year. Even so, Chinese jewellery fabrication in 2014 was 7% higher than in 2012 and the second highest on record. Heavy leasing activity in the local market has led to suggestions that retail demand was much higher than was actually the case. India, despite import restrictions, reached another record in both fabrication and consumption terms, reflecting the determined affinity of the Indian people for gold. China and India between them accounted for 54% of the world's jewellery, bar and medal demand in 2014

Source: BusinessStandard