The Australian Government Bureau of Resources and Energy Economics March 2013 Quarterly Report suggests the price of gold has begun its steady decline.
In 2012, the gold price averaged US$1699 per ounce (in 2013 dollars), a 5 per cent increase relative to 2011. By the end of 2012 the average price of gold had increased for 11 consecutive years; however, 2012 was the lowest average annual increase in the gold price over this period, the report stated.
Over the course of 2012, the gold price remained fairly stable, with the standard deviation in average daily prices less than half that of 2011.
In 2012, the increase in the gold price was supported primarily by the official sector, which increased its net purchases of gold relative to 2011. The report says this increase more than offset the effects on the gold price of lower jewellery and flat investment demand for gold.
The decline in jewellery demand for gold, it says, was largely the result of a high domestic price of gold in India.
The report forecasts that this year the gold price will decline by 4 per cent relative to 2012 to average around US$1638 an ounce.
The report blames a decrease in the investment demand for gold. Gold prices are expected to decline further if instability in global financial markets diminishes, reducing the appeal of gold as a safe haven investment.
Also, the report predicts that improving economic conditions will lead to a willingness among investors to hold a greater share of their wealth in assets other than gold, such as equities and property.
Over the remainder of the outlook period (2014 to 2018), the price of gold is projected to continue to decline and average around US$1315 in 2018, the report concludes.
Gold fabrication
Gold fabrication demand, which comprises gold used in the manufacture of jewellery, electronics, dentistry, medals, coins and other industrial applications, is already on the slide, states the report.
In 2012, gold fabrication is estimated to have declined by 5 per cent relative to 2011 to 2614 tonnes. Jewellery, which represents the largest component of gold fabrication demand, declined by 4 per cent relative to 2011 to total 1885 tonnes.
The report’s authors say the majority of this decline can be attributed to India’s higher domestic price for gold and government policies designed to reduce imports of gold, which led to an 11 per cent decrease in fabrication demand for gold.
Policies already implemented include an increase in the import duty on gold from 4 per cent to 6 per cent, a ban on jewellery imports from Thailand and restrictions upon the ability of banks to make loans for the purpose of purchasing jewellery.
Added to India’s decline, economic conditions in the Eurozone reduced demand for gold by the electronics sector, which declined by 5 per cent to 304 tonnes.
High fabrication prices resulted in a reduction in the demand for gold for decorative purposes, such as gold thread and gold plating, decreasing by 4 per cent to 86 tonnes.
Total world fabrication demand for gold in 2013 is forecast to decrease by 1 per cent, relative to 2012, to total 2580 tonnes.
On a positive note, Chinese demand for jewellery is projected to increase over the outlook period due to weaker gold prices and rising incomes that make jewellery and other fabricated gold products more affordable for an increasing number of consumers.