* Prices to average $1,225/oz in 2014
* Investment, official sector gold buying seen easing
* Gold mine supply hit record in 2013
By Jan Harvey
LONDON, Jan 23 Improving global economic health
means gold will not be rebounding anytime soon, with prices
expected to fall another 13 percent after 2013's crash caught
out investors, Thomson Reuters GFMS said in a report on
Prices are set to average $1,225 an ounce this year, GFMS
said, down from 2013 and close to current spot prices of $1,239.
Signs that the United States' ultra-loose monetary policy --
which helped push gold to record highs in 2011 -- is being
scaled back more quickly than expected could lead the metal to
break lower temporarily.
"We take the view that tapering will continue throughout the
course of the year, and the global economy will tend to get
slightly better," GFMS manager Andrew Leyland said. "There's
little reason for the flight to gold you saw at the beginning of
the financial crisis to start up again.
"That means that the gold price needs new drivers, which
started to kick in last year in the form of physical demand," he
said. "The level around $1,200 is where we see a long-term floor
come in for gold."
Strong buying of physical gold is likely to kick in if
prices slide, GFMS said, keeping the metal pegged above last
year's low of $1,180 an ounce.
That would partly offset falling investment and a rise in
mine supply to record highs for a fifth straight year, but
significant further gains are unlikely.
"On the downside there is probably more risk in the short
term that gold prices could go down towards the $1,100 or $1,000
an ounce level," Leyland said.
"We're confident that if it went down there, those levels
wouldn't be sustained for a long time, because you would see
such a return of physical demand."
Gold prices crashed 28 percent last year as investors sold
products like exchange-traded funds, anticipating the Federal
Reserve would scale back its bullion-friendly monetary easing
measures, and as new import rules in India curbed demand there.
World investment, which accounted for 28 percent of overall
demand, fell 11 percent to 1,342 tonnes, its lowest in five
years. GFMS said it expects investment to weaken further this
"Investors are still favouring equities and yielding asset
classes, while sentiment towards gold is still pretty negative,"
Leyland said. "It's certainly increased among retail investors,
but for the institutions, it seems there are better places to
put your money."
JEWELLERY DEMAND JUMPS
Last year's price crash triggered a jump in demand for
jewellery, coins and bars, particularly in China. GFMS said
Chinese jewellery fabrication surged 31 percent to 724 tonnes in
2013, its largest year-on-year tonnage gain since 1992.
China's jewellery buying rose above former number one
consumer India's for the first time last year, with Indian
jewellery demand totalling 613 tonnes, little changed from 2012.
Overall jewellery demand hit a five-year high of 2,198
tonnes in 2013, driven chiefly by burgeoning demand in the
second quarter, when bullion prices crashed by more than $360 an
ounce. It is expected to ease this year, however, with GFMS
forecasting a 16 percent drop in jewellery fabrication in the
Last year's extremely strong bar investment -- up by a third
to a record 1,338 tonnes -- is also forecast to ease in 2014,
with first-half bar demand seen falling 32 percent to 560
Central bank demand, which fell by a third last year to 359
tonnes, is expected to weaken further, although the official
sector will remain net buyers in the first half, GFMS said.
Gold mine supply hit a record 2,982 tonnes last year, up 4
percent year-on-year, GFMS said. The company is expecting a 2
percent rise in mine output in the first half of this year.
More positively for prices, scrap supply, which fell 14
percent last year as lower prices put off buyers, is expected to
continue to decline next year, by 5 percent in the first half.
(Editing by Keiron Henderson and Veronica Brown)