Gold traders are in for a good time as gold is expected to deliver the strongest price performance in five years.
“We expect gold to average $1,360/oz this year and potentially briefly approaching $1,500/oz later in the year as we believe that the geopolitical climate and equity markets will continue to support gold’s role as a risk hedge,” says a latest GFMS gold survey 2018.
The survey notes that uncertainty revolving around President Trump’s politics, along with ongoing tensions in the Middle East and Brexit negotiations will remain gold’s key drivers.
“Against this backdrop, we expect Exchange-Traded Fund (ETF) demand to rebound this year to 350 tonnes, after a modest net increase of 177 tonnes over 2017,” says the survey.
It has also forecast retail investment to go up in 2018, following four consecutive years of declines, thanks to a pick-up in bar demand, supported by improving sentiment towards gold and rising price expectations.
“Another bullish factor is that we expect China to resume as a central bank buyer and consequently the official sector globally will acquire over 400 tonnes on a net basis. Not everything in the garden will be rosy though;?we expect coin demand to slide further as this sector attracts many price sensitive investors who are likely to be discouraged by higher gold prices.”
“Rising prices will also be a headwind to jewelry offtake and we expect this to fall by 3%, with the crucial Indian market dropping back. Furthermore, we expect mine production to rise this year, as 2017 proved to be a blip after 13 consecutive increases, supported by rising Russian output and a stabilisation of production from China,” says the report.
How was demand in 2017?
According to GFMS, total physical gold demand increased 10% last year, the first annual increase since 2013.
It reports that the main driver of last year’s increase was a 13% expansion in jewelry fabrication to 2,214 tonnes.
“Following an acute fall in 2016 on the back of considerable regulatory change, Indian demand surged 58% year-on-year as the market stocked inventory ahead of the Goods & Services tax (GST) that was implemented mid-year. Meanwhile, Chinese demand retreated 3%, the smallest fall since the market surged in 2013, signaling that the market has now broadly stabilised.”
“Moreover, fabrication demand in most regions was stronger in 2017, with the Middle East, Europe and North America fabrication rising by 4%, 2%, and 1% year-on-year. Elsewhere, industrial demand also rebounded, returning to growth for the first time in seven years, while for retail investment, bar and coin demand both edged 1% and 3% lower respectively,” it says.
After a terrible plunge in 2016, global jewelry fabrication increased 13% last year to 2,214 tonnes, pulled?higher by a strong recovery in Indian consumption, the report notes.
“Despite the healthy rise, demand from this sector remained over 500 tonnes, or 18%, below the anomalous year of 2013. India contributed the most to the rise, surging 58%, the second highest level on record following the calamitous decline the previous year as the market struggled to absorb several regulatory changes.”
“Both Europe and North America edged higher last year with the stable price and improved consumer confidence following through to higher demand. Jewelry fabrication in East Asia dipped just 2% last year to 865 tonnes, the fourth consecutive decline and the lowest level since 2012. A 3% decline in Chinese fabrication accounted for the bulk of the fall as the market continues to face structural changes with greater emphasis towards carat jewelry, which is driving down ne gold consumption.