HSBC remains bullish on gold, forecasting the gold rally will last into next year, “supported by solid investor demand and high commodity prices.”
While HSBC lowered its 2012 average forecast to US$1,700 per ounce “in light of price weakness earlier this year,” HSBC analysts James Steel and Howard Wen raised average price forecasts for 2013 and 2014 to $1,850/oz and $1,775/oz, respectively.
HSBC forecasts a gold price range of $1,550 to $2,000/oz in 2013.
“Looking forward to 2013, we expect monetary easing to support prices up to near USD2,000/oz, but sluggish physical supply/demand balances should keep gold from challenging that level,” said the analysts.
“To the downside, we believe, a break of USD1,550/oz is unlikely. But if that were to occur, lower prices would be likely to stimulate physical demand and raise the possibility of a reduction in mine output, in our view,” they advised. “This should help set a firm floor for prices at around USD1,450/oz.”
In their analysis, Steel and Wen noted that Indian gold demand “has been especially disappointing this year, as a weak rupee drove gold prices up in local currency to record levels.” Meanwhile, China’s gold demand had been rising this year, but has recently eased,” they observed.
Nevertheless, HSBC forecasts a “glittery future” for gold next year. “Although the first rush of QE3-insired gold buying is over, we believe that the Fed’s open-ended commitment to easing until U.S. labor markets improve will support gold well into 2013.”
“Gold also stands to be positively influenced by any further shift in financial markets’ attention away from the Eurozone and its problems and toward similar concerns about U.S. government debt levels and fiscal policies,” said the analysts.
“Perhaps the most important plank in our bullish analysis is the likelihood that the USD will weaken, as forecast by HSBC foreign exchange research, due in part to the currency impact of QE3 and US fiscal issues,” they said. “Our macroeconomic factors, such as persistently high commodity prices, should provide a further prop for gold.”
HSBC also forecast solid central bank gold demand will continue with an additional c450 tonnes likely to be purchased by reserve managers this year and c425t in 2013 with the vast bulk of purchases continuing to come from emerging-market central banks.
“Central banks continue to be active buyers of gold,” said the analysts. “We believe official sector demand will remain buoyant this year and next as reserve managers seek out bullion for its diversification qualities.”
Meanwhile, HSBC noted gold ETF demand has moderated “but remains at record high levels; despite periodic bouts of liquidation, we anticipate further growth.”
The analysts expect total gold ETF demand this year to be c240t. “We expect this pace to moderate in 2013 to c150t.”
In their analysis, Steel and Wen updated their demand/supply forecasts, predicting that weak jewelry demand and high scrap supply may limit gold’s rally. “We believe that a price rally to USD1,900/oz could hurt jewelry demand further and encourage scrap supplies.”
HSBC suggests that gold jewelry demand may decrease by c200t to 1,773t this year. “This new forecast represents a 75t cut from our previous forecast of 1,848t.”
“For 2013, we forecast a recovery in jewelry demand to c1,875t, a 75t reduction from our previous forecast,” said the analysts. “Our forecasts are based in part on trends in the jewelry industry and sales data in combination with HSBC forecast of economic growth, real income, unemployment, inflation, and exchange rates in key gold-consuming nations.”