- Gold dropped by 28% in 2013, silver even by almost 36%
- After a good start to the year, gold prices are quickly losing momentum
- India gold import rules unlikely to change this year
How did gold prices close for the year?
On the last day of the year, the market came close – in thin trading conditions – in testing the former low of USD 1,180 per ounce. As the market was not strong enough to force a break of the level, prices quickly popped up above USD 1,210 again closing the year at USD 1,205.65, a loss of 28% and just above our year-end forecast of USD 1,200 per ounce. This was the first negative year since 2000. Palladium was the best performing precious metal moving modestly higher (+2%). Platinum prices only lost 10.5% while silver dropped by 35.7%.
How was the start of 2014?
Precious metals so far had a good start to the year. The cyclical precious metals – platinum and palladium – outperformed gold and silver mainly because of better than expected economic data releases and positive expectations on the global economy. Gold prices had a more erratic start to the year. Expectations that gold import rules in India may be relaxed before the elections gave some support. We believe this is unlikely, because reducing the high current account deficit is high on the government’s priority list and also credibility is at stake if these rules were to relax now.
Mysterious drop in gold prices on 6 January
Monday 6 January was notable for gold prices. They tumbled as much as 2.1% around 10.14 am (US) in trading of more than 8,000 contracts. This triggered the circuit breaker on COMEX. Prices recovered quickly afterwards, but the upside momentum, which was in place before the drop, faded completely.
Did gold prices recover afterwards?
From the moment the momentum faded on 6 January, gold prices have been on the defensive. Stronger than expected US data, a stronger dollar and the upcoming US employment report have been the main reasons for this. If US data continue to come in on the strong side in the coming weeks as we expect, it is just a matter of time before the market will revisit USD 1,180 per ounce and take this level out. We expect further weakness in gold prices going forward. Our forecast for the end of this year is USD 1,000 per ounce.
Impact of gold positions in central bank reserves
The Swiss National Bank (SNB) made headlines announcing a CHF 15bn loss on gold holdings. It reported that according to provisional calculations it will report a loss in the order of CHF 9bn for the 2013 financial year. It also stated that it will not pay dividend. The detailed report on the annual result, including the definite figures, will be released on 7 March 2014. The SNB is listed on the Zurich stock exchange. It is quite special for a central bank to be listed. Reporting a valuation loss is not common business for central banks. However, market-to-market valuations – if done – will make a possible loss more visible as well. We believe that the SNB announcement could make central banks more reluctant to actively buying gold and/or being vocal about doing so.