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The average price of gold is expected to fall in 2013 for the first time in 11 years, as fears of catastrophic market events fade, prompting investors to scale back bullion purchases, commodities research and consultant CPM Group said.
In its report released today, the New York firm said it expects net buying by gold investors to drop for a second consecutive year and weigh on bullion prices, even though gold fabrication and central-bank demand will rise this year.
CPM Group did not put a figure on gold's overall percentage price fall. In 2012, the price of the yellow metal rose six per cent from 2011 to an average around $1,670 an ounce, it said. The bearish call by CPM Group echoes those from top bullion banks, including HSBC, Goldman and Barclays, which have all slashed their gold forecasts within the last 30 days, citing an improving US economic outlook and a possible end to the Federal Reserve's bond-buying programme.
"We don't believe there are going to be things that will lead to the collapse of the global financial system, and we don't think the monetary accommodation that we have seen will lead to hyperinflation," said Rohit Savant, CPM Group's senior commodity analyst.
"What we see is weak, muddle-through economic growth for the next few years," Savant said. Savant said he is confident in calling for the average gold price to drop from 2012, as investors are becoming increasingly sensitive to gold's historically high price. He added that investors are likely to buy gold only after a sharp price drop. The metal's limited gain after Cyprus's near economic meltdown suggests that a lot of the bullish factors that had lifted gold in the past several years are already factored in, Savant said.
A drop in gold's average price in 2013 would be its first annual decline since 2002, according to the CPM Group. Gold is down four per cent year to date. If analysts' projections prove accurate, it will mark the end of bullion's 12-year bull run that culminated in a record high above $1,920 an ounce in September 2011.
Investor buying seen falling
Gold investment demand, a major driver behind gold's bull cycle, is expected to fall around three per cent in 2013 after a five-per cent drop in 2012, CPM Group said.
The SPDR Gold Trust in 2004, the world's No. 1 gold-backed exchange-traded fund, has provided easy access for investors to gain exposure to the yellow metal. "The shift in investor perceptions, which began in late 2011, is expected to continue and intensify during 2013, resulting in a further reduction in net purchases by investors," the report said. In February, the SPDR Gold Trust posted a record $3.8-billion monthly outflow, according to funds tracker Lipper. On a brighter note, CPM Group said it expects gold fabrication demand to rise around seven per cent in 2013 on increased gold jewellery buying due to the expected bullion price weakness.
Net buying by central banks, another major driver to gold's bull run, should rise slightly in 2013 after adjusting for a program by Turkey to allow banks to own gold as reserves.
