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Debating the Gold Price Outlook for 2013

The U.S. Comex gold futures surged 1.20 percent on 31 December, 2012, and ended at $1,675.80, up about 7 percent for the year. Gold price has risen for a twelfth consecutive year since the end of 2000. Gold has returned on average 16.28 percent per annum since 2000, compared to 2.57 percent for the S&P 500 Index, 3.26 percent for the MSCI Developed World Index, and 3.47 percent for the CRB Commodities Index. In December, despite the fiscal cliff concerns, the S&P 500 Index rose 0.71 percent while the Euro Stoxx 50 Index jumped 2.36 percent. The Dollar Index fell 0.48 percent last month while the Euro/Dollar climbed 1.59 percent.

The U.S. Senate Last-Minute Deal on the Fiscal Cliff
At the time of writing, the lawmakers of the U.S. House are debating whether to support the bipartisan “fiscal cliff” deal passed by the Senate during the early morning on 1 January, 2013. The income tax rates for most American payers will remain unchanged although those for individuals earning above $400,000 and for married couples above $450,000 will rise. Expanded unemployment benefits will continue for a year. However, the 2 percent payroll tax cut will expire. The $1.2 trillion spending cuts on the defense and domestic programs will be delayed by 2 months, coinciding with the political fight to increase the debt ceiling of $16.4 trillion in February.

China’s Rebound Continues
China’s manufacturing PMI index expanded for a third month in December, reaching 50.6, and overcoming a seven-quarter slowdown. The HSBC manufacturing PMI, which focuses on smaller businesses, came at a higher than expected 51.5 in December. The rebound has been led by higher infrastructure spending and a recovery in industrial profits. Chinese economic growth and the rising appetite for gold have provided a strong support for gold prices in the past years.

Gold’s Outlook in 2013 Debated
Analysts are split on the outlook for gold price this year. Based on the World Gold Council’s data, overall gold demand in the first 3 quarters in 2012 fell about 8 percent year-on-year although ETF demand and official sector purchases grew. A turn in investment demand for gold will not bode well for gold prices. Chartists pointed out that buyers and sellers of gold have been struggling to gain control of gold prices in the past five quarters, and expected more range trading in 2013. However, most people agree that the central bank demand and the continued money printing by the major central banks will put a floor to the gold prices.

What to Watch Near-term
Important data to watch will include the U.S. ISM manufacturing index and the Euro-17 final manufacturing PMI for December on 2 January, the December German unemployment rate and the December FOMC meeting minutes on 3 January, and the December U.S. non-farm payrolls and unemployment rate on 4 January.

Austin Kiddle
Sharps Pixley, London

02 Jan 2013 | Categories: Gold

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