As 2013 looks set to close on a sour note for gold, analysts are forecasting another lackluster year of performance for the yellow metal in 2014, with Federal Reserve tapering action looming early in the New Year.
With its safe-haven appeal weakening, the gold price is on track to record its first annual decline in 13 years. Gold is down more than 25% so far this year, while the SPDR Gold Trust ETF
(NYSEARCA:GLD) has tumbled more than 27% year-to-date. Gold stocks have fared worse, with the Market Vectors Gold Miners ETF
(NYSEARCA:GDX) falling more than 55% in the last year.
Following the Federal Reserve’s confirmation on Wednesday that it's planning to slowly begin tapering in January, the price of gold for February delivery fell $35 to $1,200/oz Thursday morning on the Comex division of the New York Mercantile Exchange.
Commentators say the Fed’s move is likely to result in weakness for the rest of the year and well into 2014.
In a note released last weekend, INTL FCStone metals analyst Edward Meir wrote that the Fed announcement would “likely set up a weaker tone in gold heading into year-end, with a good chance that we could take out our 2013 lows in the process.”
Donald Selkin, chief market strategist with National Securities, tells Minyanville that a Fed taper-triggered rise in interest rates, “could exert a negative influence on gold’s price.”
Gold, explains Selkin, has also lost its traditional safe-haven appeal “as it did not react in its usual positive way to the banking crisis in Cyprus, the ongoing civil war in Syria, and even the recent partial federal government shutdown here in the US.”
“This negativity toward gold has been reflected in the first annual decrease in exchange-traded products since trading in these instruments began in 2003,” he adds.
As government import controls also mean gold demand from India is not projected to increase by much next year and the rising costs of mining suggest no significant supply increase on the horizon, Selkin says he expects the gold price to average around $1,200 to $1,250/oz in 2014.
Last week, JPMorgan analysts lowered their gold forecast for next year to $1,263/oz as a result of tapering and low inflation in the US, they said in a research note via MarketWatch
. Similarly, Barclays says it is expecting gold to average $1,350/oz in Q1 2014, falling to $1,270/oz by the end of next year, Reuters reports
The Economist Intelligence Unit is forecasting an average gold price of $1,283.80/oz in 2014, and a slightly lower price in 2015.
However, a recent gold report by London’s Edison Investment Research argued that “far from tapering causing the gold price to fall, it will merely cause it to rise less quickly.”
Edison says the “interplay between interest rates and inflation” are key to the prospects for gold. The group says it calculates a long-term US dollar inflation rate of 10.7% under which it expects gold to average $1,511/oz in 2014 in a negative real interest rate situation. Edison expects a restoration of positive real interest rates to depress the price of gold, and in this scenario, forecasts a gold price of $1,434/oz next year.
As for the miners themselves, according to PwC’s recent gold, silver, and copper price report
, they aren’t expecting the gold price to pick up in 2014 either -- only 47% of gold producers expect the price to increase in the next 12 months, compared to 88% last year.
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