WGC: Gold Market Performance and Analysis in 2013

review-2013

(Seeking Alpha) – Gold price have been sensitive to the U.S. monetary policies normalization by tapering economic stimulus program known as Quantitative Easiness (QE). It fell in 2013 as investors reacted to U.S. economic performance indicators. The U.S. dollar (USD) strength and demand from Asia were the main direct factors that drove gold price movement during 2013.

2013 Gold Market Overview

gold-2013

Gold price chart in 2013

Gold price recorded its first annual loss in the long 12 years bull-run. The yellow metal lost 27.3% of its value in terms USD, based on London PM gold fixes. However, strong demand from China countered the outflow from gold Exchange Traded Funds (ETFs), demand curbs in India and weakening sentiment in derivatives market to some extent. Still, gold price took the downside this year.

Gold-backed ETFs was the main reason behind gold price slide. Investors liquidate 32% of their gold ETF assets, approximately 900 tonnes in 2013. In the derivative markets, gold futures longs such as COMEX fell by 82%, losing 481 tonnes. However, physical gold inventories in COMEX fell only by 29%, 100 tonnes over the year. Therefore, sold gold in the derivatives market was more speculation than actual liquidation and the leak in gold inventories was mainly from ETF liquidation.

Despite Q4 gold demand statistics are still under progress, Chinese demand was off the chart. China rose to be the top gold consumer in the world, surprising the India in Q3, to record over 1,054 tonnes net gold imports in October 2013 according to some reports. Since China doesn’t report official gold holdings or gold imports volumes, it’s hard to compile and collect data on Chinese gold consumption. However, China consumed 1,176.40 tonnes of gold in 2013, according to the latest report from Reuters. This huge surge in demand absorbed much of the gold leaked from ETFs liquidation.

Bearish Analysts Outlook in 2013

 

Bull-Market

Bear and Bull

Analysts were bearish on gold during the first quarter of 2013, and had doubts for continuing the 12-year long bull-run. Continuous talk about the Federal Reserve (Fed) tapering stimulus and anticipation of the European Central Bank (ECB) for Cyprus to sell gold from its reserve increased investors concerns and kept gold price from rising despite the surge in Asian demand. Gold price fell around 15% from Friday to Monday in mid April 2013 on ECB comments.

India continued to impose restrictions on gold imports by rising taxes and limiting gold imports volumes in an attempt to reduce its current account deficit. By the withdrawal of former number gold consumer from the gold market, India, investor’s concerns about demand increased and gold price weakened.

That bearish outlook made some investors move towards risk assets. Negative outlook for the gold markets in 2013 was backed up by a brighter view and promises of the U.S. government to improve.

Analysts found 7 factors affecting gold price movement: local currencies, inflation rates, interest rates, risks assessments, consumer spending and income growth, short-term flows and income growth, and supply. The most influential factor was foreign exchange rates of the USD against global currencies. However, real gold market drives are more complicated than that. Gold mines reported increased costs and several companies were forced to write-down, thus weakening the supply.

To sum up, Gold price movement was affected in 2013 by general market news, which led western investors to other markets in a pursuit of higher returns during the first half of the year. Asian investors filled that gap in demand partially. By normalization of US monetary policies, investors started to return to the gold market once again. Gold mining industry suffered from low gold prices and higher costs. Correction of gold price from the fast dip over the short-term took place, still gold took the downside during 2013.