Gold seen at highest annual price for five years in 2018

London (Reuters): Gold in 2018 will deliver its strongest annual price performance in five years, GFMS analysts forecast on Tuesday, as political uncertainty drives investment in bars and bullion-backed investment funds.

The GFMS metals research team, a unit of Thomson Reuters, predicted gold would average $1,360 an ounce this year, up 8% from 2017, with some short-term moves towards $1,500.

Gold has not risen above that level since early 2013.

“Uncertainty revolving around President (Donald) Trump’s politics, along with ongoing tensions in the Middle East and Brexit negotiations will remain gold’s key drivers,” the team said as it released its Gold Survey 2018.

The team expected demand by exchange traded funds (ETFs) to rebound this year to 350 tons.

“Retail investment is forecast to rise in 2018 following four consecutive years of declines, thanks to a pick-up in bar demand, supported by improving sentiment towards gold and rising price expectations,” GFMS said.

Adding to the bullish picture, the Chinese central bank was expected to resume purchases, GFMS said, leading to a rise in net official sector demand this year to more than 400 tonnes for the first time since 2015. The Chinese central bank, once a major buyer of gold, has not reported any additions to its reserves since October 2016.

ETF demand totalled 177 tons last year, GFMS said, while physical gold demand, including buying of jewellery, coins and bars, rose 10%, its first annual increase since 2013.

That was driven by a 13% climb in jewellery fabrication, its first annual rise since 2013, with demand in the world’s second largest consumer India particularly strong before the implementation of a new tax regime mid-year.

Jewellery fabrication in East Asia, which includes number one consumer China, fell for a fourth year in a row to its weakest in five years, with a drop in Chinese fabrication accounting for the bulk of the drop, GFMS said.

Overall, China’s gold demand was down 3% in 2017 and Chinese consumption was expected to weaken further this year, GFMS said, citing structural changes in the jewellery industry which have seen retailers focus on higher-margin products.

Global bar demand was expected to rise 1%, recovering after falling for four years in a row, while coin demand was forecast to remain subdued after falling in 2017 to its weakest since 2007, GFMS said.

“The continual increase in the gold price has kept bargain hunters on the sideline, as coin investors are usually the most price sensitive in the market,” it said.

“The improving sentiment over the economic outlook, particularly in the United States, have investors less interested in gold coins as their risk appetite increased.”

Mine production edged lower last year for the first time since 2008, GFMS said, totalling 3,247 tons.

In 2018, the team said it expected mine output to hit a record 3,265 tons. “We expect Asian countries such as Indonesia, Mongolia and China to contribute to gains in the current year, accompanied by Russia, Australia and Canada,” it said.

India’s April gold imports plunge 39% on weak demand

MUMBAI (Reuters): India’s gold imports fell for a fourth straight month in April from a year ago to 57 tonnes on subdued demand after local prices jumped to the highest level in nearly 21 months, provisional data from precious metals consultancy GFMS and bank dealers showed.

The drop in purchases by India, though, could weigh on global prices, which are still up nearly 6% from a mid-December trough, despite dropping back from a 17-month high hit at the end of January.

Lower gold imports could also help the South Asian country reduce its trade deficit.

The price rise curtailed retail purchases and also prompted jewellers to postpone re-stocking, Sudheesh Nambiath, a senior analyst with GFMS, a division of Thomson Reuters, said on Tuesday.

Local gold prices jumped to their highest in 21 months in April following gains in the overseas market.

The drop in the rupee to the lowest level in 14 months in April made gold even more expensive for retail consumers and squeezed demand, said Abhishek Bansal, promoter of ABans Jewels Pvt. Ltd, which runs a gold refinery.

India imported 93.6 tons of gold in April 2017. Gold imports in the January to April period fell 34% from a year ago to 220.1 tons, data compiled by GFMS showed.

In April, Indians celebrated the annual festival of Akshaya Tritiya, during which buying of gold is considered auspicious.

“Price rise weighed on Akshay Tritiya demand,” said a Mumbai-based gold dealer.

India’s imports in May would be higher than April, but would be significantly lower than the 119.3 tons imported in May 2017, said a Mumbai-based head of the gold trading desk at a private bullion importing bank.

“Slowly, consumers and jewellers are adjusting to higher prices. Wedding season demand is also good,” the bank official said.

Gold is an essential part of a bride’s dowry in India and also a popular gift from family and guests at weddings.