GFMS says gold to average $1259/oz in 2017

GOLD jewellery demand is currently at a 28-year low and investment in gold was key to further price revival.

This is the view of the latest GFMS gold survey for the fourth quarter, published by Thompson Reuter.

The final quarter of 2016 had the gold market in the largest surplus since the fourth quarter of 2005, with ETF sales and constrained Indian demand due to demonetisation playing key roles.

Lower prices did help to spark markedly higher retail investment demand compared to the previous quarter, with the election of President Donald Trump playing a more minor contributory role.

"Physical demand was at a seven-year low in 2016, and while rose 29% quarter-on-quarter in the final three months of 2016, this was arguably a disappointing result, as demand was still down 10% year-on-year despite the slump in prices," the survey said.

"Other things being equal, physical demand could easily have been in the order of 250 tonnes higher in the final quarter.

"Of all the dramatic twists and turns in 2016, Indian Prime Minister Narendra Modi's announcement that he was set to demonetise large Indian banknotes, which were equivalent to about 86% of the currency, was surely the most unexpected of all.

"While in the long term this may have some positive implications for Indian gold demand in the short term it was yet another hurdle which crimped Indian jewellery fabrication and ensured India lost its crown to China as the largest gold consumer overall in 2016.

"Indeed Indian jewellery fabrication was at a 20-year low in 2016. Meanwhile, even though China became the largest gold consumer overall again, this was not in any way a reflection of strong demand there.

"In fact, jewellery demand in China was down 14.8% year-on-year in the final quarter of 2016 with the K-gold and gem-set gaining market share. Indeed global jewellery fabrication in 2016 was at the lowest since 1988 in volume terms," the survey noted/

On price outlook, the survey noted that gold prices have started 2017 by making up some of the losses from late last year.

"However, the US dollar is likely to remain a substantial headwind to further price rises, at least in the first half of 2017. There are few indications that physical demand from Asia is set to pick up just yet. But, as the year progresses there is a growing likelihood of safe haven flows helped by either or both US and European geopolitics. In Europe an election result, perhaps in France or the Netherlands, might be responsible, increasing the chances of a country leaving the Eurozone, while in the US a more unorthodox approach from Trump could increase such flows. Thus we forecast gold to average $1259 per ounce in 2017. Source:
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