September 11, 2012 http://www.trustablegold.com
At the beginning of 2012 the gold price had increased on an annual basis in each year for a decade. What is the forecast for the gold price 2013 and beyond? Will the 10-year upwards trend of the gold price continue in 2013?
A majority of gold investors views gold more as an insurance or store of value than as a means of speculation. These investors therefore regularly take a longer-term view on gold as an investment. What trend of the gold price can we expect in 2013 and for the following years? Gold price forecasts will never be completely accurate, but we collected some information on the key drivers influencing the gold price and analysts’ gold price forecasts for 2013.
The gold price started into the year 2012 at US dollars 1,530 per ounce. Over the full year 2011 the price of gold had increased by more than 12% despite the two dips in September and November/ December. This made 2011 the tenth consecutive year in which the gold price increased.
By August, 23rd 2012 the gold price had further increased – amid high volatility – to roughly US dollars 1,730, i.e. approximately by 13%. In Euro terms the price increase was even higher with more than +14%.
Drivers of the gold price
The gold price is – as the price of any commodity – driven by the basic laws of supply and demand. The demand for gold falls into four sectors: The official sector, i.e. central banks, jewellery, technology, i.e. industrial and dental sectors, and private investment.
In 2010 the central banks have developed from net sellers to net buyers of gold, driven by a decrease of sales from developed countries and an increase in buying activity from developing countries. Given the low percentage of central banks asset allocation into gold in emerging countries like China (2% versus about 70% in countries like the United States, Germany and France), there is a solid chance that the official sector will continue to be a net buyer of gold in 2013 and even beyond 2013.
Over the last decade jewellery demand for gold decreased in relation to demand from other sectors, mainly the investment sector. High gold prices and economic uncertainties will likely keep gold demand from jewellery moderate in 2013.
Gold demand for industrial purposes and dental uses accounted for just about 10% of total gold demand in 2011. As for jewellery demand, high prices and potentially low/volatile growth will likely dampen demand for gold for industrial uses in 2013.
Besides jewellery, the demand from the investment sector accounts for more than 40% of total demand. Amidst the money and debt creation by major economies and following the financial crisis, which started in 2007, the demand for gold as an investment reached record highs in 2011. While during the previous gold price peak in the second quarter of 2010 the demand came nearly in equal parts from gold securities like Gold ETF and physical gold in the form of bars and coins, this changed during the latest peak in the third quarter 2011, when nearly 80% of investment demand flowed into physical gold, e.g., in the form of professionally vaulted gold
The second important driver of the gold price in addition to the demand factors is the supply side. The supply of gold is composed of mine supply, i.e. gold production, and gold recycling.
Mine production reached a new high in 2010 and is expected to increase by about 10% until 2013. Gold recycling, i.e. gold scrap, is also on a record level. The high gold price and economic troubles will likely result in a continuously high level of gold scrap in 2013 and potentially beyond.
Scenarios for 2013 and the gold price trend
The overarching driver of the gold price for the year 2013 and beyond will be the development of global financial crisis. The levels of debt piled up by Western governments and often also corporate/private sectors are still not sustainable. There is basically one scenario to get rid of this burden: disciplined deleveraging, i.e. reduction of debts. The alternative, which was pursued over the past years, is to create more debt. This could eventually lead to inflation levels significantly above the inflation rates we saw during the last decade in Western currencies.
Either way, both a deleveraging, which will probably be long and painful (‘the lost decade’), or a reduction of the real debt pressures by means of higher inflation will potentially preserve gold as an attractive insurance asset or store of value for many conservative investors in 2013 and beyond. Geopolitical risks, e.g. in relation to Iran, will support this position of gold as a ‘safe haven’ further.
Gold price forecasts 2013
For March 2012 analysts surveyed by Bloomberg end of 2011 forecasted a level of US dollars 1,950.- per ounce of gold.
The French Bank BNP Paribas estimated in December 2012 gold to average US dollars 1,775 per ounce in 2012 and US dollars 2,150 per ounce in 2013. On the other hand Thomson Reuters GFMS expects the peak of the gold price for end of 2012 or beginning of 2013 and a following decrease in the price of gold from 2013 on. The US-bank Morgan Stanley forecasted a price of US dollars 1,550 for 2013. The CEO of the largest US gold mining company Newmont Mining estimates that the price of gold in 2013 may increase to US dollars 2,550.
In June 2012, Goldman Sachs updated its forecast on the gold price to US$ 1,940.- within the following 12 months, i.e. by mid of 2013. Barclays Capital expects a gold price of US$ 1,790.- in the fourth quarter of 2012, while Morgan Stanley now predicts gold prices to be on a level of US$ 2,000.- during that quarter.
Outlook on Gold 2013 and beyond
The diversity of analyst predictions with regard to the gold price in 2013 and the following years mirrors the uncertainties in the global markets.
An interesting fact about gold is that it often performs well in scenarios of deflation (for instance driven by global debt reductions) but also in scenarios with higher than usual inflation rates (which could potentially occur as public debt level increases further).
Gold therefore tends to perform positively in times of economic uncertainties as well as in acute crises. Unfortunately, the global financial problems are not yet sorted out. Some credible commentators expect several more years of uncertainty and painful deleveraging, which could end only when we are approaching the next decade.
Thus, in the foreseeable future a moderate allocation to gold will remain the imperative for many investors and could result in a positive trend of the gold price 2013 and beyond. Portfolio diversification, i.e. the allocation of funds to different asset classes and investments, should remain an imperative for safety-orientated investors over the coming years.