A lack of investment interest in gold is starting to take its toll on the price, with an average of $1,225/oz forecast for 2014 and heading lower in 2015, GFMS said Thursday in its Gold Survey 2014.
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The price forecast is 13% lower than the 2013 average of $1,411.23/oz.
"The price is expected to post 2014 lows in mid-year, with a fundamentally driven rally thereafter, but this is likely to peter out in early 2015," the Thomson Reuters/GFMS survey read.
Despite the "heavy visible sales from Exchange Traded Funds, driving a 25% price fall in the second quarter [of 2013], OTC investors were net buyers in 2013, notably in East Asia and the Middle East," the report read.
Physical demand -- including official sector purchases -- came in at an all-time high in 2013 at 4,957 mt -- "a 15% increase over 2012 and some 703 mt higher than the supply of new gold and scrap" during the year.
"While demand is forecast to outstrip new gold plus scrap supply in 2014, the market is expected to be closer to fundamental balance than last year."
Rhona O'Connell, head of metals, GFMS research and forecasts at Thomson Reuters, pointed out that ETF holdings peaked at 2,698 mt at the start of 2013 and fell by 880 mt over the year, for a net dollar outflow of $40 billion, while gold inventories on the major exchanges fell by 99 mt, "so these sources between them released not far short of 1,000 mt into the market last year."
Still, the analyst pointed out that, "this was easily absorbed by the voracious appetites in East Asia and the Middle East. As a result, metal flowed rapidly out of North America and the United Kingdom and much went through Swiss refineries for recasting from London Good Delivery -- 400 oz bars -- into smaller products favored by Asian investors."
Bar investment in Asia "rocketed by 43%, rising to 1,060 mt, from 740 mt in 2012, contributing to the global increase of 341 mt. Investment-grade jewellery gained 21% -- or 326 mt -- in the region, comprising the bulk of the 362 mt gain on a worldwide basis."
Looking at price action, O'Connell said that fundamentals point to a trading range of $1,200-$1,300/oz in the short term.
"There is however a distinct possibility of a slump towards $1,100, while as the year unfolds, seasonal strengthening physical demand could then propel prices towards $1,400 again. Investor appetite is not strong, however, and without this important element the price is expected to resume a downward course in 2015," she said.