FOCUS – Similarities with tough 90s growing in gold market – Metals Focus

London 27/11/2013 – Similarities with the 1990s are becoming more and more marked in the gold market, Metals Focus told FastMarkets.

The metal’s failure to hold above $1,300 has “reinforced the negative investor sentiment surrounding gold [and] the similarities with the late 1990s are increasingly evident,” the research firm said.

That decade was one of the toughest on record for the gold market. After peaking at $502.97 per ounce in December 1987, the metal started a long, slow and rarely interrupted decline, losing half its value to $251.70 in August 1999.

“Investors are minded to focus on negative stories and essentially dismiss those which might be price supportive,” Metals Focus said. “The hallmarks of the 1990s are growing. At that time, in spite of relatively strong jewellery demand, investors focussed on the perceived threat of significant central bank sales.”

But Metals Focus does not believe that a decade of falling prices is imminent, director Nikos Kavalis said.

“We see the mood, rather than the effect or the drivers, replicated,” he said. “We are not saying that we are going to see sideways trading for the next decade. We are cautious over the next two years, expecting some modest price declines, but beyond that the picture improves.”

Metals Focus forecasts gold averaging $1,150 in 2015 before rising to $1,450 in 2018. Spot gold was last at $1,251.75 per ounce, up $8.45 on the previous day’s close.

Kavalis identified two factors that will come to the rescue of the market: production cuts and an improvement in genuine fundamental support, particularly from the jewellery and bar and coin investment market

“This is unchartered territory for the gold market – we have had a decade of surpluses and rising prices so it is pretty hard to conceive what will happen if the market has to deal with deficits,” he added.

(Editing by Mark Shaw)

Eddie van der Walt

About Eddie van der Walt

London-based, South African-born metals markets reporter, currently focusing on precious metals and the London Metal Exchange. All that glitters must be sold. Twitter: @EvdW