Researchers cite internal, external factors as price passes bottom
The Gold Research Centre says the price of gold has passed the bottom and the average global price should be better in the second half of the year on both external and internal factors.
The expected interest-rate increase by the US Federal Reserve because of the country’s positive economic indicators, the global political uncertainties in Ukraine and Iraq, and the expected increase in demand for a strengthening Thai baht are factors that could influence the global price of gold in the second half of the year, said Kamolthun Pornphaisarnvichit, the centre’s research director.
“The last time the US economy was recovering, in 2010, the first thing the Fed did was to increase the discount rate, which is currently 0.75 per cent, and this rate is related to the federal funds rate,” he said. “Therefore, if there are changes to the fed fund rate, there will be changes in the discount rate, and this is the first sign that the US Fed is about to increase its interest rate.”
These factors led the centre to project a global gold price this year of between US$1,180 and $1,400, with the price improving in the second half, after it reached its lowest point last December ($1,180) in reaction to the US Fed tapering its quantitative easing (QE) policy.
Kamolthun expects a high price range of $1,260-$1,280 and a low range of $1,200-$1,220.
No more QE tapering
The centre does not expect the price to fall below $1,180 because there will be no more QE tapering in the second half of the year and because of the political uncertainties in many countries.
It forecasts the price of gold bar in Thailand to be Bt17,500-Bt22,000 per baht weight in the second half based on fluctuations of the Thai currency around Bt32 per US dollar.
Kamolthun predicts the highest range at Bt19,600-Bt19,800 and the lowest at Bt18,600-Bt18,800.
“Increased confidence has led to increased demand for the baht, which has the potential to increase its strength, and the fund flows that are coming back to the country along with the growth of the GDP are factors that influence the price of gold in the country,” he said.
The centre’s gold price sentiment index in April fell 9.76 per cent, dropping 45.53 points, which reflects the negative point of view of the gold price in the country at the time, and it also reflected the sentiment of investors and traders, he said.
The main factors influencing sentiment are baht fluctuations, the strengthening US dollar, and the recovery of the domestic economy, he said.
The centre worked out the total cost of production at eight major gold mines from 2007-2013 and learned that costs were rising because of higher excavation costs and energy expenditures.
The average cost in 2013 was $676.69 per troy ounce and the all-in sustaining cost was $915-$1,200 per ounce.
When compared with the average weight-cost of production, the all-in sustaining cost is $1,032.61 per ounce.