Late to the Bull Run, Gold Analysts Finally Turn Bearish on LBMA Forecast

January 21, 2014

After worst fall since 1982, consensus sees 14% drop in average 2014 gold price...

AFTER LAGGING gold all the way up during its 12-year bull run, bank and professional-analyst consensus now sees a 14% drop in average prices during 2014.

The mean estimate of 28 analysts entering this year's London Bullion Market Association forecast contest, published Tuesday, says the 2014 gold price will average $1219 per ounce.

Last year's daily average of $1411 dropped 15% from 2012, marking the fourth worst year on record behind 1981 (-25%), 1976 (-22%) and 1982 (-18%).

The LBMA contest's average forecast was then way too optimistic, out by a massive 25%. In fact, at $1753 per ounce last year's consensus nearly matched the average 2012 forecast of $1766 – itself 6% ahead of the $1669 reality by year-end.

"Gold will likely soften again this year as demand drops," says René Hochreiter, the best gold forecaster in the LBMA survey for the last two years running, "although it should not experience the sharp falls of 2013."

CEO of Johannesburg-based mining finance consultants Allan Hochreiter Pty, he believes gold prices in 2014 will average $1150, with a range of range of $1050-1250 per ounce – tighter than the average consensus of $1067-1379.

Forecasting a price range and average in line with consensus ($1045-1400; $1200), "The key danger for gold," says Swiss investment and London bullion bank UBS's precious metals strategist Edel Tully, "lies with a market focus shifting from QE tapering to pricing in US interest rate hikes.

LBMA winner for gold when prices peaked in 2011, "A return to [gold miner] hedging also threatens," says Tully.

Three analysts forecast a gold price low of $950 in 2014. At the top, only one sees a break above $1500. But Martin Murenbeeld of Canada's Dundee Capital Markets still predicts an average price of only $1250 for the full year, thanks to the contest's widest trading-range forecast of nearly $500 per ounce.

The "good news" for gold, says Murenbeeld, is that gold ETFs look "extremely unlikely" to dump another 800 tonnes of metal back into the market this year. Rich-world central banks are meantime working to boost inflation, while emerging economies are buying gold for their reserves, on top of strong consumer demand.

But "has the floor been found in gold?" asks Tom Kendall, head of precious metals research at Swiss investment bank and London market-maker Credit Suisse, who declared the End of an Era for Gold in a February 2013 report to clients.

"No, is our unequivocal answer...A strengthening US economy will likely see [rising] yields in a low inflation environment...On its current trend, gold will trade below $1000 before the end of the year."

René Hochreiter is meantime more bearish on silver, the category in which he also won the LBMA forecast competition in 2013. Now forecasting an average 2014 price of $17.00, down from last year's $23.79, he sees a huge trading range of $12-23 per ounce – matched by only one other analyst, Robin Bhar at Societe Generale.

"Silver is notoriously volatile and prone to short covering rallies and heavy bouts of long liquidation," says Bhar. Regardless of "some investor appetite for silver" in 2014, he believes, "much of [the market] surplus will have to go into industry or dealer stocks."

Palladium – the only precious metal to rise in 2013 – will add almost 7% to average $775 per ounce, according to the analysts' mean forecast.

The average platinum price will be flat at $1490.

 

Adrian Ash

BullionVault

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash is head of research at BullionVault, the physical gold and silver market for private investors online. City correspondent for Bill Bonner’s Daily Reckoning from 2003 to 2008, and previously head of editorial at London's top publisher of private-investment advice, Adrian is now a regular contributor to many leading analysis sites including Forbes and Gold-Eagle, and a regular guest on the BBC as well as international broadcasters. His views on the gold market are frequently quoted by the Financial Times, Daily Telegraph, MarketWatch and many other leading new outlets.

 

It is estimated that the total amount of gold mined up to the end of 2011 is approximately 166,000 tonnes.