GFMS: Gold Price "Should Move Back Above $1800 This Year" But Bear Market "Could Start in 2014"

THE U.S. DOLLAR gold price should rally back above $1800 an ounce before the end of 2013, pushed higher by "lax monetary policies" from, the US Federal Reserve, according to leading precious metals consultancy Thomson Reuters GFMS.

Investment gold demand is expected to remain "the key driver of prices" as it was in 2012, GFMS head of precious metals research & forecasts Neil Meader told an audience in London this week at the launch of the consultancy's Gold Survey 2013 report.

"Gold is likely to remain very sensitive to US monetary policy," said Meader.

"Even though we've had some hawkish noise from within the Fed, it's difficult to see a material unwinding of the [quantitative easing] program until well into 2014."

Although GFMS says it expects demand for gold jewelry fabrication to weaken further this year, gold investment demand is seen rising to its highest level since 2009 at nearly 1900 tonnes. The consultancy points to an ongoing "supportive macroeconomic environment" for gold investment, including sluggish economic growth in industrialized nations, ongoing sovereign debt concerns and ultra-low interest rates.

Meader also noted the longer-term possibility of rising inflationary concerns, "a consequence, in the main, of lax monetary policies".

For the year ahead, GFMS says it expects the gold price to average $1730 an ounce, with the range seen as $1530 to $1850. Gold is currently trading around $1550 an ounce.

Looking at beyond this year "we can perceive a return to something more like normality for the macroeconomic backdrop," said Meader, "and that could easily entail the start of a secular bear market, perhaps in late 2013 or more probably in 2014."

Meader added that the so-called "weight of money" argument that institutions such as pension funds could spark a gold price rally by allocating just a fraction of their capital to gold is "beginning to look threadbare" after four years of "near perfect conditions" for gold investment during which such institutions showed little interest in precious metals.

This marks a change from last year's GFMS Gold Survey launch, where it was suggested pension funds and sovereign wealth funds might offer some scope for growth.