Barclays Capital has reduced its gold price forecast for 2013 to USD 1,646 per oz from USD 1,778 per oz. The bank also lowered its Q1 forecast to USD 1,630 per oz from the previous USD 1,710 per oz. It seems the bank’s analysts see increased downside risks for the yellow metal, while upside catalysts have receded.
The new Barclays gold price forecast would make 2013 the first time the average annual gold price has fallen since 2001, if it proves correct. Continuous macroeconomic uncertainty could still drive gold prices higher, but investor fatigue has capped upside momentum.
Physical demand from India and China in part has responded to the lower price environment. Additional risk is also the continued ETP outflows.
Positive data indicating that the US economy is steadily recovering has weighed upon gold, which thrives in difficult times due to its safe haven properties.
The Barclays downgrade follows that of Goldman Sachs which cut its 12 month gold price forecast to USD 1,550 per oz from USD 1,800 per oz, citing the growing momentum of the US economy and the drop in investment holdings.
ETP Outflows
Gold ETP holdings have continued to fall after February saw a record outflow with 110 tonnes in net redemptions across the 55 products tracked by Barclays. Net outflows have reached 27t so far in March. Total metal held in trust remains elevated at 2,623 tonnes but is 143 tonnes off the all-time high. Outflows for the year to date have reached 137 tonnes compared with modest net inflows of 71 tonnes. There is scope for hefty ETP selling but outflows have slowed. Here the risk is likely to rise again should yield bearing assets outperform further.
Demand
The lower price environment has stimulated demand in China. Volume traded on the Shanghai Gold Exchange has eased from the record high set after the new year holiday but remains elevated. However, demand in India has returned to the sidelines despite local prices falling to their lowest level since July 2012. Fresh demand is expected to take place in April ahead of the wedding and festival season.
We believe prices are likely to encounter rangebound trading, with support coming from the physical market, central bank buying, a low interest rate environment and the risk of medium-term inflation, but they could struggle to gain upward momentum without a new catalyst. The gold price is still above the marginal cost of production plus sustaining capex, according to the analyst. Barclays estimates this cost at USD 1,200 per oz.
