REASEARCH & ANALYSIS
Thomson Reuters GFMS has launched its Gold Survey 2012 -
Update 1. The following media release details some of the highlights from the briefing given at the launch by Philip Klapwijk,
Global Head of Metals Analytics
at Thomson Reuters GFMS.
Gold Survey - Update 1 provides
GFMS’ first published estimate
of what the fundamentals might look like for calendar 2012 and, with that done, it
is of note that the consultancy remains firmly bullish, with the price expected to clear the $1,800
mark before year-end. However, it was
felt unlikely that 2011’s highs of just over $1,900 would be surpassed. Klapwijk commented, “I think we’re on pretty safe ground
saying that we’ve already seen the lows for the year and that firmer prices, particularly towards year-end, are on the cards, but
we’re also expecting a bumpy ride looking ahead - any intensification of the Eurozone
crisis or dashing of hopes for further easing by the Fed and you could easily see the rally derailed for a while”.
As intimated above, GFMS believe that gold prices will be strongly
influenced by governments’
monetary and fiscal policies,
particularly those enacted by the US administration. Klapwijk
recently seen how gold can react sharply
to any prospect of more QE in the United States and
confident that some form of easing is more likely than not in the end; we may have seen periodic items of good news on the US economy
but that invariably seems followed by bad, and this is all before a probable slowdown in both European and Chinese economic growth. Neither can we
ignore its domestic problem of the fiscal cliff, with all the uncertainty and recessionary potential bound up in that”.
The consultancy notes that looser monetary policy is to be expected both
in the developed world and in emerging
markets, such as China.
All this was ultimately expected to undermine faith in currencies (and in particular
the US dollar), stoke inflationary
fears and lead to an extended
period of ultra-low interest rates. The statistics
in Update 1 show World Investment (the sum of all forms of investment) in the second half reaching a record in both
tonnage terms (over 970 tonnes) and in value (an approximate figure $53 billion).
One development that lifted investor
sentiment was further growth in already elevated levels of official sector buying to an estimated first half 2012
figure of just over 270 tonnes, chiefly
as a result of an ongoing
desire to diversify foreign reserves away from the US dollar. The consultancy also noted that this
buying had been focused on price dips, providing clear support to the market
over difficult times in late
spring/early summer. Even though such opportunistic
buying might reduce somewhat in the second half should the price rally strongly,
the consultancy still expects a historically high net
purchase figure of 220 tonnes and cautions that this figure could easily prove conservative.
Elsewhere on the demand
side, the consultancy
reports that jewellery
fabrication in the first half fell
by almost 13%, chiefly on
account of a poor result in India, where offtake dropped in the face of record local prices,
a lack of conviction in future price
trends and a slowing economy.
As for the second half, global jewellery
demand is expected to grow modestly, even in the event of a price rally, partly as that latter move could bring back to life investment-related
buying. Nonetheless, the consultancy has expressed concern about currently sluggish Indian buying and that Chinese offtake is not as robust as it had once been.
Even if fabrication demand underwhelms, its flipside, scrap supply, was not felt likely to rule out any price rally, with second half volumes forecast effectively unchanged year-on-year. The chief reasons ascribed for this were price
accustomisation, a belief
among some holders of scrap that yet higher
prices were imminent and,
perhaps most importantly, a decline in near-market stocks. Other
aspects of supply were also not thought obstructive.
Mine production, for instance, was forecast to increase in the
second half but only by
24 tonnes and GFMS’ estimate of full year output is now lower than
once expected, chiefly as
guidance on a slew of projects
has been marked down. Also
of significance was the ongoing absence of producer hedging; Update 1 shows this staying on the demand side in the second half as a modest 12 tonnes of net de-hedging
is forecast, illustrating the extent to which equity investors continue to militate against such activities.