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Wednesday, 11 December 2013

Gold and Silver outlook in 2014

How would demand and supply pan out in 2014.

Global mine production in the first half of 2013 increased by 41 MT or 3 per cent, to total 1,416 MT. Geographically, gains were diverse, with notable increases in China, the Dominican Republic, Canada and Russia. Global scrap supply fell by 14 per cent in the first half of 2013 to an estimated 662 MT chiefly as a result of weaker gold prices. Jewellery fabrication jumped by 22.8 per cent in the first half, in response to a marked decline in gold prices. Net official sector purchase has dropped by 32.0 per cent to 191 MT in the first half of 2013.

What would be the major triggers for gold prices in 2014?

Looking at the price trends in gold, prices started the down trend since August 2012. Gold’s ability to stage further price gains for the remainder of the year will largely depend on developments in the US and its labour market which, while still fragile, has shown improvements in recent months. Indeed, particularly since the Fed has tied its QE mandate towards developments in the unemployment rate, the FOMC meetings and the non-farm payroll releases have almost become price trend determining events. The other factors to be closely watched are festival periods for jewellery purchases (particularly in China and India), recent geopolitical tensions in Syria which could lead to a wider Middle East conflict and the proposed Fed tapering of EQ3 which would lead gold to another downside rally.

Tell us how volatile gold would be in 2014.

From the Indian perspective, gold has always been seen as a saviour in times of financial crisis and the pledge or sale of gold has helped investors reap benefits of investments made earlier. Hence, even though the commodity is under stress in the current scenario, the emotional value towards the metal that has been existent since centuries will not be shaken up completely. Although trends in demand patterns will change and the outlook of investors will evolve, the role of gold as an important investment asset will continue in the years to come. In the years 2011 and 2012 gold has again witnessed a decline in demand as sentiments towards the improvement in the US economy have become positive and additionally, investors are now seeking different investment avenues considering the fact that the nature of price drivers that affect gold prices has become very volatile.

What is the outlook for gold in 2014?

I feel that the inflationary impact would continue to be seen as crude oil prices remain high, thus keeping a positive factor of inflation-hedge demand. While the Federal Reserve is expected to begin tapering of the stimulus, other major economies like Europe and Japan are likely to see a continuation of the stimulus. China too is expected to announce some measures in order to boost economic growth. Such liquidity and boosting actions by central bankers would create an inflationary scenario going forward and thus support demand for the yellow metal. The overall trend in the gold prices is expected to be bullish and the Indian market is likely to trade between 25700 on the lower side and 35200 on the higher side for the year ending 2014.

How should one invest in gold in 2014?

Like other asset classes, a gold investment is associated with risks. The price of gold can fluctuate strongly in the short term and also in the long term. Over very long periods of time gold does show a high and – from our perspective – unique stability or wealth preservation. However, such periods can be too long for individual investors. On the other hand, for any risk averse investor an addition of gold contributes to the diversification of his/her investment portfolio. Due to the low correlation of gold with other asset classes, a gold investment reduces the (price) risk for the investor and therefore can reduce potential losses. Professional and courageous investors can speculate on a specific gold price development. For safety-oriented investors it is recommended – also in light of the lack of a regular income or interest from a gold investment a form of insurance. Unlike possibly individual stocks, bonds and other securities, gold will never lose its value completely. Conservative investors should invest only a portion of their total assets in gold.

How silver would perform in 2014.

In India the silver demand and imports into India fell 80 per cent in 2012. The fall in demand has a direct reflection on import, though India produces sizable silver, unlike gold where the country is totally import-dependent. In 2012, India's silver demand for investment was just 300 MT, against 1,549 MT in 2011. India's total demand for silver was 3,234 MT in 2012 against 4,437 MT in 2011. The import was 1,900 MT in 2012, against 4,087 MT in 2011. Silver prices peaked in April 2011, at a global $48.4 an ounce. In the global market, primary silver mine supply grew only slightly in 2012, by 1 per cent. Primary silver total cash costs rose by 9 per cent, to $8.88/oz, as credits from base metal by-product revenues fell, coupled with lower grades and higher input cost inflation. Total fabrication in 2012 dropped by 6.6 per cent to 846.8 Moz (26,339 MT), reflecting losses in all areas. Industrial fabrication fell the second year in a row, easing by 4.5 per cent to 465.9 Moz (14,490 MT), due mainly to patchy GDP growth and thrifting. Implied net investment surged by 21 per cent to a fresh all-time high of 160.0 Moz (4,976 MT). The overall trend in the silver prices is expected to be bullish and the Indian market is likely to trade between 41000 on the lower side and 64000 on the higher side for the year ending 2014.

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