(Corrects first half Chinese jewellery demand in paragraph 12)
* Gold to average $1,446/oz in 2013, $1,350/oz in 2014
* Gold may reach $1,500 by early-2014, before falling below
* China, India demand to contract, bar hoarding to halve in
By Clara Denina
LONDON, Sept 12 Gold prices are likely to
contract further in 2014, after tumbling for the first time in
more than a decade this year with the case for bullion undone by
confidence in a stabilising global economy, a metals consultancy
said on Thursday.
In an update to its Gold Survey 2013, Thomson Reuters GFMS
said the market could beat a retreat below $1,300 towards the
end of 2014 as U.S. monetary stimulus is withdrawn, fuelling
talk of rising interest rates.
The consultancy expects prices to average $1,350 next year,
down 7 percent from $1,446 in 2013, with support seen between
$1,200 and $1,250.
Markets are widely tipping the U.S. Federal Reserve to start
tapering its $85 billion monthly bond-buying as early as this
"Although the Fed tapering has been priced in already by the
gold market, that is not to say that you won't be getting a bit
of a wobble as of when it is announced," Rhona O'Connell, head
of metals research and forecasting said.
"And certainly one of the most important elements is that
when they start talking about raising interest rates that is
also likely to put some pressure on the market in terms of
sentiment," she added.
The consultancy still held out for a positive start to next
year, with geopolitical tensions and a possible breakdown in
negotiations over the U.S. debt ceiling raising the possibility
of a brief price rise to $1,500 in early 2014.
Gold prices have fallen by around a fifth this year, hitting
a three-year low in June of $1,180.71 an ounce, after the Fed
signalled it would start tapering its bond-buying programme by
the end of the year, with an aim to withdraw it by mid-2014.
Prices are currently around $1,360, some $540 below
their September 2011 record high of $1,920.30 an ounce.
PHYSICAL DEMAND FADES
GFMS remained cautious on physical demand growth, saying
that exceptional levels seen in the first half were unlikely to
be replicated in the coming months as inventories in traditional
buying stronghold China had been replenished.
April's gold selloff - which saw spot prices slump $200 an
ounce in two days in their sharpest slide in 30 years - and
another retracement in June sent bar and coin demand to a record
high of 725 tonnes, and jewellery fabrication to its strongest
since 2007 at 1,137 tonnes in the first half of the year.
Thomson Reuters GFMS said first-half Chinese high-carat
jewellery buying rose to 345 tonnes in the first six months of
the year, against 500 tonnes for the full calendar year in 2012.
It expects 620 tonnes this year.
"China's physical demand is slowing down as gold prices rose
from earlier lows and because there was so much buying between
April and August that people already stocked up for the upcoming
gifting season," O'Connell said.
"At the moment, we are looking at the second half of the
year probably being some 80 percent of what the first half was."
China's gold market has grown at a blistering pace in recent
years, helping fuel a rally in gold prices to a record $1,920.30
an ounce in 2011. The country is poised to overtake India's
position as the top gold consumer by as much as 100 tonnes this
year, GFMS said.
Indian jewellery fabrication jumped by 25 percent in the
first half to almost 350 tonnes. But demand is now expected to
fall as the Indian government introduced a series of measures to
curb gold imports, due to their contribution to the country's
expanding trade deficit.
LOW INVESTOR APPETITE
Exchange-traded funds (ETFs), which issue securities backed
by physical metal, lost 660 tonnes as of the end of August from
a peak of 2,691 tonnes at the end of 2012 on Fed tapering
"The amount of gold that has come out of ETFs was more than
enough to feed physical demand from Asia after the big price
fall in the second quarter, which was too good an opportunity to
miss for an awful lot of people from grassroots, retail, private
individual purchasers," O'Connell said.
Net central bank buying fell by 32 percent to 191 tonnes in
the first half and is seen reaching 361 tonnes for the year,
down from 445 tonnes in 2012, GFMS said.
On the supply side of the market, global mine production
rose three percent to 1,416 tonnes in the first six months and
is expected to rise 0.8 percent to 1,501 tonnes in the second
half. Scrap supply fell 14.3 percent to 662 tonnes in the same
period and will continue to drop by 10.2 percent to 736 tonnes
in the second half.
GFMS said producers remained net de-hedgers of gold in the
first half of the year, with an increase of interest in
establishing fresh hedge positions more than offset by several
producers taking the fall in price as an opportunity to close
out hedging contracts more cheaply and in some cases for profit.
(Reporting By Clara Denina; Editing by Veronica Brown and David