Gold To Face Repeating Challenges: CPM Group’s Gold Yearbook

By Daniela Cambone of Kitco News; [email protected]
www.kitco.com

New York – (Kitco News) - The factors which weighed on gold’s decline in 2014 are expected to carry over this year, said research firm, CPM Group on Tuesday.

The New York-based consultancy released its annual gold yearbook at Bloomberg’s headquarters during an event fittingly called, An Evening On Gold which featured a panel of gold experts. The yearbook is considered one of the industry’s staples for forecasting the metal.

In 2014, gold prices faced relatively weaker fabrication demand from China, ongoing selling by shorter term investors, a stronger U.S. dollar, equity markets scaling record highs, and oil prices slipping lower in the final part of the year, CPM said. In turn, gold prices slipped to some significant lows last year.

“The annual average price decline during 2014 was smaller than the 15.6% decline seen in 2013, however, on an intraday basis, gold prices slipped to $1,130.40, their lowest level since 2010,” CPM Group said.

CPM expects these factors to remain in place in 2015.

“Gold prices may weaken based on investors’ likely negative views toward gold and commodities in the face of imminent U.S. interest rate increases. Such speculation could drive gold prices to their lows for the year,” the research firm said in a press release.

However, the firm expects gold prices to rebound from losses relatively quickly. “The downside is limited as much of the impact from these issues already is baked into the price of gold. In fact, any significant weakening of investor enthusiasm for U.S. stocks, or the dollar, could prove supportive of higher gold prices, the reverse of 2014’s trends.”

Buying Interest

Investors purchased 28.1 million ounces of gold in 2014, a 16.3% decline from 33.5 million the previous year.

CPM Group said that although the reduction in purchases weighed on gold prices, it still ranked in the top 15 for highest level of investment demand since 1950.

“This relatively healthy investment demand was one of the primary factors that helped support gold prices at historically elevated levels during 2014. Longer term investors were largely responsible for the net additions,” CPM explained.

CPM anticipates investor purchases to decline in 2015 to 26.9 million ounces. This would still rank investment demand during 2015 in the top 20% of net additions to investor holdings on an annual basis.

Central banks

 Central banks remained net buyers in 2014, with 5.5 million ounces of gold purchased, compared with a net reduction of 0.3 million ounces in 2013. CPM said, “[C]entral banks reported adding 9.5 million ounces of gold to their holdings on a gross basis during 2014. This compares with 6.0 million ounces of gross purchases during 2013.”

Russia led the pack adding 5.56 million ounces to its reserves. “Increased hostility between Russia and the West, particularly with the United States, over Ukraine and other issues, encouraged the Russian central bank to increase its reserve gold holdings during the year,” CPM noted, adding that Russia is expected to continue to buy in 2015 as a means to diversify away from its U.S. dollar reserves in 2015.

On the flip-side, the largest net disposals of gold came from the Bank of International Settlement (BIS), which reduced its holdings by 5.54 million ounces during the year. This accounted for 95.5% of total reduction of central bank gold holdings, CPM said.

Gold Supply

On the supply side, CPM found that gold supply rose during 2014, reaching 126.7 million ounces during the year, up 1.1% from 2013. Mine supply reached a record 90.5 million ounces in 2014. Despite the big numbers in mine supply, total supply did not hit records since secondary supply, which accounts for around a third of total supply, was declining during the year, CPM said.

Fabrication demand

CPM is forecasting gold fabrication demand to rise to 96.9 million ounces in 2015, up 4.2% from 2014. “This healthy increase in fabrication demand during 2015 is predicated on an expectation of relatively soft gold prices and on gold prices forming a base at this relatively low level. Both of these factors are important to boosting demand,” CPM said.

The firm said that India will also play an important role in boosting global fabrication demand for gold during 2015, “[T]here has been a partial scale back in import restrictions during 2014 and an improvement in the country’s macroeconomic fundamentals,” it said.

CPM is scheduled to release its Silver yearbook on April 29 and its Platinum yearbook on June 23.

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