In 2013, gold prices suffered a four-pronged assault in the form of falling central bank demand, falling Indian demand, rising outflows from physically backed exchange-traded products (ETPs), and the tapering of US economic stimulus.

“It was the first year we’ve seen such low central bank demand since 2008,” Bernard Dahdah, precious metals analyst at Natixis and winner of the MB Apex contest in precious metals for 2013, told Metal Bulletin.

“Also in central banks, we had the story in Cyprus, which was a big deal for the market,” he added.

During the Cypriot debt crisis in 2012 and 2013, the main fear was that the government would sell off gold reserves, which could have caused contagion in countries such as Italy, Spain and Portugal.

The main outcome of this was that central banks slowed down their purchasing of gold, rather than selling it off, although this was also linked to the fact that some had reached their target holdings of the yellow metal.

“When the financial crisis first started, central banks in developing countries were big holders of dollar-denominated assets, but then they started to transfer away from that into gold,” Dahdah said.

“A lot of them have reached their target share of gold, and in 2013, we saw a slowdown in purchasing,” he added.

On top of this, physically backed ETPs started shedding material, and demand turned into supply, according to Dahdah.

In 2013, about 870 tonnes of gold were sold into the market by physically backed ETPs, which is the equivalent of 18% of global supply in 2012, he said.

“[That was combined with] the withdrawing of demand, and that created the big imbalance,” Dahdah said.

The introduction of the policy in India curbing gold imports also pushed prices down, he added, cutting back a major historical source of demand.

“Import duties on gold reached 10% in August and reduced the Indian appetite,” Dahdah said.

“It’s important to look at gold denominated in rupees. The currency depreciated by 10%, which made gold even more expensive.”

GDP growth also slowed down in India, to 4.4% in the first quarter of 2013, and gold imports fell with it.

Tapering financial stimulus
The main force that ended the bull run on gold, however, was the introduction of the tapering of financial stimulus in the USA, according to Dahdah.

“With improving economic conditions in the US, currency started appreciating and yields started going up,” he said.

“That increased the opportunity cost of holding gold. An appreciating currency means safe haven status is no longer needed.”

Silver prices were similarly lacklustre in 2013, as their correlation to gold prices continued, and demand from the photovoltaic sector also dropped.

“That accounts for about 10% of demand for silver. It hasn’t been a magnificent year for gold or silver,” Dahdah said.

Platinum and palladium were under pressure in 2013, furthermore, as the issues they faced in South Africa in 2012 persisted, and car sales were less than stellar.

High costs, low demand and continuing labour disputes hit the PGM market hard in 2013, and platinum came close to the cash cost of production, at 14,000 rand per oz ($1,286.80 per tonne).

“This is the break-even point. Looking at auto sales generally in 2013, just the USA and China had positive figures,” Dahdah said.

“European sales dropped 1.7% year-on-year in 2013, Russian sales were down 5% and Indian sales by 7%.”

It was a difficult year for both platinum and palladium, he said, but there was some compensation for platinum at least, thanks to growing Chinese demand for jewellery.

Dahdah topped Metal Bulletin’s Apex leaderboard for his precious metals price predictions overall in 2013 with 85.37% accuracy.

Claire Hack
Twitter: @clairehack_mb