Gold 2013 – What is the trend for the gold price in 2013 and beyond?
By the end of 2012 the gold price had increased on an annual basis in each year of the last decade. But in the first months of 2013 we saw a decreasing gold price. 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.
Review of Gold in 2012
The gold price started into the year 2012 at US dollars 1,531 per ounce. Over 2012 the gold price had increased by about 8% to about US dollars 1,657. In September 2012 the price of gold had even peaked for that year at roughly US Dollars 1,792.
In euro terms the price increase for 2012 was nearly 6%.
In the first three months of 2013 the gold price has fallen by about 5% to US dollars 1,552 on April 3rd. In Euros, the decrease was much lower with only about 2%, and in British Pound the gold price even saw a slight increase of about 1% over the same period.
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. The central banks continued to increase stocks in 2011 and 2012. Given the low percentage of central banks asset allocation into gold of 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. Nevertheless, demand from jewellery amounted in 2012 with 43% to the largest share of total gold demand.
Gold demand for industrial purposes and dental uses accounted for just about 10% of total gold demand in 2012. As for jewellery demand, high prices and potentially low/volatile growth could further dampen demand for gold for industrial uses in 2013.
As the second largest driver of gold demand, the demand from the investment sector accounted for about 35% of total demand in 2012. 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 sustained its high levels 2012.
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 at the gold price peak in the third quarter of 2011, when nearly 80% of investment demand flowed into physical gold, e.g., in the form of professionally vaulted gold. Also in 2012, about 82% of investment demand came from physical gold products. This indicates that safety is a major concern for gold investors, who usually view physical gold or vaulted gold as more safe than so called ‘paper gold’ (see our comparison of different forms of gold investment).
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 increased a little bit further in 2011. In 2012, overall supply of gold – from mine production and recycling – decreased slightly, i.e. there is currently no negative pressure on the gold price to be expected from the supply side.
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 the global financial crisis or more potentially more correctly regional financial crises. The levels of debt piled up by many Western governments (not to forget Japan) and often also corporate/private sectors seem still often 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 the fourth quarter of 2013 analysts surveyed by Bloomberg in November 2012 forecasted a level of US dollars 1,925.- per ounce of gold.
The bullion bank ScotiaMocatta forecasts a rising gold price in 2013 and would not be surprised to see a gold price above US$ 2,200.- per troy ounce of gold.
The French Bank BNP Paribas estimated in November 2012 gold to reach US dollars 1,675 per ounce in 2012 and US dollars 1,865 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. In November 2012, members of the London Bullion Market Association forecast a gold price of US dollars 1,843.- by September 2013. The global bank HSBC predicts a very similar gold price of 1,850 US dollars per ounce of gold in 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.
After the decline of gold prices in the first three months of 2013, several analysts updated their forecasts for the gold price. For example, Societe Generale lowered its estimated gold price for 2013 from 1,700.- US Dollars to 1,500.- US Dollars and the price forecast for 2014 from 1,600.- to 1,400.- US Dollars. Historically speaking, analysts have often followed the actual gold price movements and extrapolated current trends. It is to be seen, what quality the current forecasts will have in the future.
Outlook on Gold 2013 and beyond
The diversity and fluctuation 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.
As with every investment, fees are a key performance driver to be considered when investing in gold. Vaulted gold, i.e. gold stored in professional vaults, can offer investors outright gold ownership at reasonable fees combined with high liquidity and safety. Investors would be well advised to compare gold investments.
[Last update: April 4th, 2013]