Glittering Year Ahead For Gold Investors

Gold has a glittering year ahead if predictions of bullion experts contain a nugget of truth.

The Economist Intelligence Unit (EIU) says global gold consumption should rise next year after demand dropped by 7.4% in 2012.

A slowdown in the economies of India and China also helped fuel the decline –  but China is expected to overtake India as the biggest consumer of gold jewelry this year.

Experts say that demand from investors looking to hedge against rising inflation will help the market grow by around 3%.

The global demand for gold bars and coins was down by 11% in the first half of the year after demand for gold soared because of instability in the Middle East, the eurozone crisis and inflation worries.

Prices peaked

Mining production growth will remain at the roughly the same levels with new mines starting production to replace older ones where ore yield has fallen.

Most gold mining companies are keeping an eye on rising production costs against the falling price for gold – though prices are still at an historical high.

Increased supply will mean a slightly larger surplus of gold next year of around 316 tonnes – up from 231 tonnes this year due, mainly, to soft demand.

The EIU is forecasting that prices will remain steady through 2013 before a stronger global economic recovery prompts investors to draw funds out of gold to invest in other asset classes.

This will lead to a slight fall in the price through 2014 until the fourth quarter when economic recovery takes places and strengthening monetary policies lead more investors out of gold and into other investments, leading to a lower price for gold.

One issue being monitored by bullion investors which could have a major effect on the price of gold is around the ‘fiscal cliff’ talks in the USA which could see tax rises and welfare cuts to help balance the economy.

Analysts in agreement

The forecast of the EIU is also mirrored by other gold market experts.

Among them is the French bank BNP Paribas which has recently cut its gold price forecast for 2013, saying the market is ‘cautious’.

And, the say, prices will decline into 2014 which would mean this is the first time gold has fallen in its annual price for 14 years.

The bank points to a ‘disappointing last two months’ as gold didn’t see an upturn in prices from seasonal demand from India and China and investors spreading risk among assets.

Investment bank Goldman Sachs also agreed with the same forecast and in its prediction said prices would fall slightly due to the lack of improved economic growth and also highlighted price falls in 2014.