Gold Market Update – June 2013

Expectations for the US Federal Reserve to begin tapering its $85 billion in monthly debt buying this year, a rising US dollar and a slowing Chinese economy have sent ripples through the gold market. The price of gold is now heading for its first annual decline since 2000.

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  • The price of gold fell by 5.0% over June, consolidating a 5.0% decline over May. The spot price is currently fetching around $1,240 an ounce.
  • The price of gold is well on track for its first annual decline since 2000, with expectations for the US Federal Reserve to begin tapering its asset buying program this year, a rising US dollar and a slowing Chinese economy pushing prices lower.
  • Investors are losing faith in gold as a store of value, with holdings of exchange traded products (ETPs) set to report their first annual decline since their introduction in 2003. But lower prices have been a catalyst for stronger consumer gold buying recently.
  • Latest data from the World Gold Council show that the overall volume of gold demand in March quarter 2013 fell to 963 tonnes (US$50.5 billion), from 1,188 tonnes in the December quarter. However, total quarterly supply of gold eased to around 945 tonnes, reflecting a decline in mined production and recycled gold.
  • Central banks continue to increase their holdings of gold reserves while reducing their purchases of US dollar and Euro denominated assets, providing underlying support for the shiny metal.
  • Indian demand for gold may retreat over coming months following the end to the Indian wedding season and the recent raising of import duties on gold, while consumers may limit their purchases of gold in the current unstable price environment.
  • The culmination of recent events has caused a drastic revision in the price of gold, bringing into question the ability of gold to maintain its mantle as a store of value. Over-exuberance during the post-GFC period seems to have lifted prices to unsustainably high levels over recent years, which are now being unwound. We have built in a moderate correction to our gold price forecasts this month and expect gold to end the year at around US$1,210 an ounce.

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