* Bullion likely already seen highs for the year
* Silver expected to average around $20/oz
By Jan Harvey
LONDON, May 7 Gold prices have probably peaked
this year and could sink to their lowest since 2010 at $1,100 an
ounce as the U.S. economic recovery gathers pace, consultancy
Metals Focus said on Wednesday.
Weakness is likely to set in after an impressive start to
the year, it said, when gold rallied to six-month highs.
But a replay of last year's 28 percent plunge, triggered by the
U.S. Federal Reserve's tapering of extraordinary stimulus
measures, is not on the cards.
The consultancy also forecast that an eventual easing of
tensions in Ukraine would add to a bearish trajectory for the
"In the short term, the U.S. recovery regaining momentum
(thanks to improving weather conditions) and the eventual
de-escalation in Ukraine are likely catalysts for lower prices,"
it said in its Gold and Silver Mining Focus 2014.
"Meanwhile, the Fed's ongoing reduction in its bond
purchases, easing concerns about fiscal situations on both sides
of the Atlantic and low inflation are all headwinds for the
yellow metal for the rest of 2014."
Robust demand from the major physical gold markets in Asia
should help offset Western investors' lingering caution in gold
futures, derivatives and exchange-traded funds.
Chinese demand, which surged last year as prices fell, will
remain strong, it said, though below the 2013 level. That, along
with strength in retail demand in Western markets, helped drive
a 35 percent surge in physical investment last year to 47.1
Jewellery consumption also rose 22 percent to 81.7 million
ounces, while the volume of scrap gold returned to the market
fell 26 percent to 39.3 million ounces.
That helped offset a 5 percent rise in output from gold
mines to 96.7 million ounces, resulting in a 21.8 tonne
structural deficit in the market last year, Metals Focus said.
That does not include outflows from bullion-backed
exchange-traded funds (ETFs), however, which according to
Reuters data totalled 26.354 million ounces last year. The
strength of ETF outflows was a major weight on prices in 2013.
"Given plenty of above-ground inventory, other than a
temporary shortage of kilobars in Q2, the gold market remained
well supplied last year," Metals Focus said. "Moreover, it is of
note that 'Western' investors tend to set the price, while
physical markets react to it."
The consultancy expects silver prices to average just
under $20 an ounce this year, not far from current levels but
well below last year's average of around $23.80 an ounce, as its
"Global supply is expected to rise by around 2 percent,
compared with a 4 percent drop in world silver demand," it said.
"The most significant change ... is expected in physical
investment, which is forecast to drop 11 percent."
(Reporting by Jan Harvey; Editing by Veronica Brown and Jane