THE centre of gravity in the physical gold market moved dramatically eastwards during 2013 as professional investors disgorged metal, for it to be snapped up by rampant demand in Asia and the Middle East. While ETF investors sold 880 tonnes over the course of 2013, bar hoarding in East Asia, the Indian Sub-Continent and the Middle East amounted to 1066 tonnes, with a global total of 1338 tonnes.

These statistics are included in ‘Update 2’ to the 2013 Thomson Reuters GFMS’ edition of its annual world Gold Survey, which looks at global market shifts and developments.

Thomson Reuters’ head of Metals Research and Forecasting Rhona O’Connell noted that while the professional market seemed to be obsessed with the ‘tapering’ issue in the US, private individuals in traditional gold investing countries had no such qualms and as the price tumbled, hordes of buyers appeared in the market.

When the two sets of numbers are taken together they tell a slightly different story. In 2012 ETF holdings rose by 278 tonnes with global bar hoarding of 1007 tonnes. Combined, therefore, these two sectors accounted for a net 458 tonnes of physical gold investment in 2013, against 1285 tonnes in 2012. While the private investor again demonstrated a near-voracious appetite for gold in the wake of a sharp weakening in prices, the key story in 2013 was that of the professional investor’s loss of interest in the metal, which is expected to persist in 2014.

While there is the clear possibility of a short-covering rally in the first quarter, that could build on the recent stabilization above $1185 and possibly generate a test of $1330 before the quarter is out, the gold market has not regained the sparkle of 2008-late 2011, and is not expected to do so.

Tapering is expected to continue in the US through at least to the end of 2014, by which stage some interest rate guidance is expected to emerge. Improving economic fundamentals are expected to continue to inform investor appetite for risk and are also likely to militate against hefty gold investment, suggesting that while it may stage an early rally, gold will fail to pierce the overall downtrend in place since late 2011.

With investment activity muted gold is likely to show a more traditionally seasonal pattern than has been the case in recent years. This points towards the possibility of brief tests of $1000 should there be any further investor retreat in the second and possibly the third quarters of the year, but physical demand is expected easily to be robust enough to defend any test of this level and any such dips would be short lived.

Indeed the fundamentals point to a gold market more or less in fundamental balance during 2014 and this leads to an expected price upturn in the final four months of the year, although Thomson Reuters GFMS does not expect the price to breach $1300. The price is forecast to average $1225/ounce over the year, 13% below 2013.

Also of interest:

  • Middle Eastern jewellery buyers reverted to higher purity, plainer pieces following gold’s price falls;
  • Chinese jewellery fabrication surged by 31% in 2013 to 724 tonnes, 33% of the world total;
  • Indian restrictions on imports and higher tariffs constrained jewellery fabrication to a 1% fall against 2012, while smuggling sprang up again. Indian fabrication was 613 tonnes, so China and India between them accounted for 51% of world fabrication; and
  • Mine supply grew 4% as a result of fresh operations and higher grades at some mines.