March 31, 2015 / 12:01 PM / 4 years ago

Gold prices to bottom out in 2015 after two-year slide - report

* End of bear cycle may be in sight for gold - Metals Focus

* Arrival of first rise in U.S. rates will remove uncertainty

* Gold mine output to retreat from record high this year

By Jan Harvey

LONDON, March 31 (Reuters) - Gold prices are forecast to bottom out in 2015 after a two-year slide as the expected start of the Federal Reserve’s rate-raising cycle removes a key event risk from the market, consultancy Metals Focus said in a report on Tuesday.

Better prospects for gold sales in Asia, lower selling from Western investors, and a retreat in mine supply from record highs are likely to play into a stable market this year, it said.

Expectations for higher interest rates, which would lift the opportunity cost of holding non-yielding bullion while supporting the dollar, have been the chief factor pushing spot gold lower so far this year.

“We remain cautious of gold in the near term,” the company said in its Gold Focus 2015 report. “The end of the bear cycle however may well be in sight. Counter-intuitively, we see this as likely to come shortly after the Fed starts raising interest rates.”

“This is premised on our expectation that these increases will be slow and modest, leaving real rates in negative territory for some time to come.”

The company expects gold prices to bottom out this year at $1,080 an ounce, their weakest since February 2010, and to average $1,190 an ounce in the full year.

Once the uncertainty surrounding the timing of potential rate increases is resolved, gold is poised to rise, it said.

“From 2016 onwards, there are several plausible candidates waiting in the wings to provide the spark for a renewed gold bull market,” the report said.

“They include potentially gold-friendly developments in debt, inflation, foreign exchange, commodity and equity markets and the scope for a far more malign environment for international relations to develop over the next few years.”

Demand for gold jewellery, coins and bars fell last year as gold prices declined 2 percent, the report said, after a 28 percent slump in the previous year drove demand for physical gold sharply higher.

Jewellery consumption fell 9 percent in 2014, while physical investment - largely in gold coins and bars - slid 41 percent, with major consumers China and India responsible for more than half of the losses.

This year Metals Focus expects jewellery consumption to rise 3 percent, while it sees buying by central banks continuing, though at a marginally lower rate.

Gold mine production, which rose 2 percent last year to a record 3,133 tonnes, is expected to decline by a very marginal 14 tonnes. Recycled gold supply is seen steadying after a near 6 percent drop this year. (Editing by Dale Hudson)

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