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HSBC Raises 2013 Gold Price Forecast To $1,446 On Physical Demand
By Kitco News
Thursday September 12, 2013 2:00 PM
(Kitco News) - Strong physical gold demand will determine the metal’s price trend in 2013 and 2014 as investment buying will be reduced, said HSBC.
In a research note released on Thursday, HSBC said it is raising its 2013 average price estimate for gold to $1,446 an ounce, up $50 from its previous forecast, based on the surge in physical buying. It left its 2014 and 2015 forecasts unchanged at $1,435 and $1,395, respectively, and its long-term forecast unchanged at $1,500.
“We see a broad price range this year of $1,500-$1,225 for the remainder of this year. This compares to our previous range of $1,375-$1,125. We are raising our trading range in response to strong physical demand and reduced scrap supplies. This increased physical demand should offset the drop in investment and along with stagnant mine output, should put a floor on prices and help buoy prices,” they said.
The “massive” increase in physical demand, particularly in China, staved off further losses for gold caused by investors selling their holdings of exchange-traded funds and net-long positions on the Comex, based on the reduced demand for safe havens and expectations of U.S. monetary policy shift, the firm said.
The gold bull run ended this year, HSBC said as the investment demand that fuelled the rally is much lower. The firm does not expect ETF demand to pick up or for new longs to come back to the futures market, and it is forecasting investment to continue at a lower, but stable level for the “foreseeable future.”
There’s little threat of inflation to spur investment demand, the firm said. HSBC’s global economists forecast a low-growth environment which will keep inflation at bay and reduces the chance of stagflation.
“With investment demand no longer determining gold prices, we believe the price is now being driven by physical demand for jewelry, coins, and bars from China, in particular. Indeed, we would argue that physical demand trends will be key to gold prices in 2013 and 2014,” they said.
HSBC estimates Chinese gold imports may be as much as 1,000 metric tons this year.
Gold prices could be highly volatility this year because of the Federal Reserve tapering its quantitative easing program, which could lift the U.S. dollar and weigh on bullion, they said.
Central banks will remain gold buyers, but they may buy less, HSBC said, which lowered its official sector purchase forecast to about 400 tons, down 50 tons from its previous forecast. “This is equivalent to one-sixth of world mine production, making central banks an important source of physical demand,” they said.
Jewelry demand is expected to increase, particularly in Asian nations. For 2013, HSBC forecast gold-jewelry demand up 16% to about 2,200 tons, with that likely to grow another 100 tons in 2014.
“Our forecasts are based in part on trends in the jewelry industry and sales data in combination with HSBC forecasts of economic growth, real income, unemployment, inflation, and exchange rates in key gold-buying nations,” the firm said.
On the supply side, HSBC forecast a slight growth in mine supply, up about 30 tons, to 2,863. “Prices are not high enough to encourage greater production; however, prices may not be low enough, for long enough to result in significant output declines,” they said.
The lower prices will likely mean a reduction in scrap supplies. They forecast scrap supplies to fall about 12% to about 1,400 tons in 2013, down from 1,591 in 2012. For 2014, scrap supplies may rise slightly to about 1,425 tons. “The reduction in scrap supply is likely to help put a floor under prices, especially if it coincides with price–related increases in coin, bar and jewelry demand,” HSBC said.
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By Debbie Carlson of Kitco News
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