Further gold price falls seen before flatter mine output meets new inflation concerns...

 

GOLD's decade-long bull market is set to resume in 2015, albeit "gradually" from a new bottom according to a new forecast from the market's leading data analysts, Thomson Reuters GFMS.

 

Thanks to gold's rally over the first half of 2014 from $1200 to $1400, the consultancy says today in the first Update to its Gold Survey 2014, "Price sensitive [consumer] markets have seen sales slow.

 

"We believe it will take prices in a $1200-1250 range in order for physical buying from Middle Eastern, East and South East Asian markets to begin to increase."

 

Low volatility and gold's tightening price range form "the other defining feature" of the 2014 market to date, GFMS adds, noting that volatility on a 100-day basis has fallen to its second-lowest level since 2005, "undermin[ing] trade volumes."

 

Launching the Update on Thursday, "The lack of a clear price direction," said Rhona O'Connell, the London-based consultancy's head of metals research and forecasts, "[plus] the expectation of lower prices have been key drivers in deterring purchases among private buyers and a similar mentality has prevailed in the professional sector."

 

A recovery in European economic growth is "pivotal" to GFMS's longer-term gold price forecast, because only then will investor attention focus on the "inflationary pressures" built up by what it calls "the massive injections of liquidity into the financial system" from central banks worldwide over the last 7 years of financial crisis.

 

China's central bank reportedly injected $81 billion of cash into the country 5 largest banks this week. The European Central Bank is scheduled to begin a new round of cheap, open-ended bank lending today.

 

"There has been a whiff of professional investor interest [in gold] this year," Thomson Reuters GFMS says, "but this is still very tentative" thanks to US tapering of the Federal Reserve's quantitative easing program, plus the perceived risk of rising interest rates once tapering ends.

 

Noting the problems facing Middle Eastern gold demand thanks to political and military strife, "Any price fall towards $1200 is expected to see a strong resurgence in physical interest" from price-sensitive consumer markets, says O'Connell.

 

Demand from China in particular has been stifled so far in 2014 by consumers' bargain-hunting on last year's price crash, plus huge stockpiling by wholesalers.

 

Year on year, the first half of 2014 saw gold bar investment demand fall 50% globally, with a greater drop in both China and India – the world's top 2 consumer nations.

 

Gold prices at $1200 now mark "the next big level to watch on the downside," says GFMS – a level likely to be seen "in the coming months".

 

But with central banks in emerging economies "continu[ing] a sustained strong buying policy," GFMS also forecasts global gold mining output will peak and then plateau from 2014. Coupled with a likely return of inflation concerns, this should see "the fundamental position" of the gold market's supply and demand balance "start to tighten during 2015 as underlying demand strengthens, taking the market into a deficit.

 

"The price is therefore expected to bottom out during 2015 before embarking on a gradual bull market."