As 2013 looks set to close on a negative note for gold. Market analysts are forecasting another lackluster year of performance for the yellow metal in 2014. This is partially attributed to the Federal Reserve tapering action looming early in the New Year.
With its safe-haven appeal weakening due to improved economic conditions worldwide, 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. Gold stocks have fared worse, with the Market Vectors Gold Miners ETF falling more than 55% in the last year.
Following the Federal Reserve’s confirmation from last Wednesday that it’s planning to slowly begin tapering in January, the gold price for February delivery fell last Thursday but recovered slightly on Friday. Gold for February delivery settled at $1,203.70 an ounce on the Comex division of the New York Mercantile Exchange. For the week, prices ended 2.5% lower.
Market commentators say the U.S. Federal Reserve’s move is likely to result in weakness for the rest of the year and well into 2014.
Gold 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 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.
Gold demand from India is not projected to increase by much next year as government import controls. The rising costs of mining suggest no significant supply increase on the horizon.
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.
Barclays bank says it is expecting gold to average $1,350/oz in Q1 2014, falling to $1,270/oz by the end of next year, according to Reuters.
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, the interplay between interest rates and inflation are key to the prospects for gold. The long-term US dollar inflation rate is calculated at approximately 10.7% under which it expects gold to average $1,511/oz in 2014 in a negative real interest rate situation. A restoration of positive real interest rates are expected to depress the price of gold, and in this scenario, gold price could hover around $1,434/oz next year.
According to PwC’s recent gold, silver, and copper price report , also miners are not expecting the gold price to pick up in 2014. Only 47% of gold producers expect the price to increase in the next 12 months, compared to 88% last year.