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Developments in the US economy will be the key driver for gold prices in 2014, according to Bernard Dahdah, precious metals analyst at Natixis and winner of Metal Bulletin’s Apex contest for 2013 for precious metal price predictions.
“As the US economic situation continues to improve, prices will be at risk of further decline if interest rates continue to rise,” he told Metal Bulletin.
“The start of tapering heralds the beginning of the end of ultra low US interest rates. We think [rates] will continue to rise, which will increase the opportunity cost of holding gold.”
Dahdah, who topped the Apex leaderboard with 85.37% accuracy for his overall precious metals price predictions in 2013, added that there will also be further outflows of material from physically backed exchange-traded products (ETPs).
“It won’t be the same as in 2013, but there’s still scope as there’s 1,750 tonnes left in physically backed ETPs,” he said.
“We also expect to start seeing some hedging from producers if the gold price falls below the cash cost of production.”
In terms of the situation in Asia, Natixis analysts will be eagerly awaiting the Indian elections next year, which could usher in changes to the country’s curbs on gold imports.
“Should the policy change or the restrictions be lifted, we could see some positive news for gold,” Dahdah said.
“As for Chinese consumption, we expect it to remain strong in 2014, but not necessarily growing at the same pace as it did between 2012 and 2013, which was about 20%.”
Central bank demand for gold is likely to remain modest in 2014, he said, but it could begin to grow if prices for the yellow metal continue to fall.
The central banks will be looking to rebalance their books in order to maintain their share of gold as part of their total foreign exchange reserves, Dahdah added.
“We think we’re starting to get closer to the break-even point for gold, at $1,150 per oz,” he said.
“If we reach that level, we might see parallels with platinum, where this level will provide a floor under the price of gold, under which it won’t drop for sustained periods.”
Gold will also continue to dictate the price of silver in 2014, and concerns remain over the amount of silver in physically backed ETPs.
This could lead to an increase in silver availability if outflows rise, mirroring the situation with gold in 2013.
“We didn’t see big outflows of silver this year. Our concern is that if the US economy continues to improve, at a certain point, we could see complete distrust in silver,” Dahdah said.
Platinum and palladium are likely to see some improvements in prices, meanwhile, as demand for cars begins recover, and Chinese demand for jewellery rises.
Natixis is “quite bullish” on platinum especially, Dahdah said, as supply problems in South Africa are likely to persist, because of continuing labour disputes and the lack of a reliable national power supply.
In 2014, Dahdah is currently predicting an average gold price of $1,200 per oz, $17 per oz for silver, $1,580 per oz for platinum and $760 per oz for palladium.
Dahdah took second place for his gold price predictions overall in 2013, with 83.76% accuracy, and second place on silver, with 74.11%.
Claire Hack chack@metalbulletin.com Twitter: @clairehack_mb