Commodities forecaster tips gold prices to remain subdued
The gold price slumped in the past 24 hours to its lowest price in two months, fetching $US1290 per ounce on Wednesday evening.
After a decade-long rally, gold prices suffered a correction in 2013 and the Bureau of Resources and Energy Economics has dismissed the chances of a rebound.
In its latest quarterly report, the bureau predicted gold would fetch an average of $US1275 per ounce in 2014 and remain below $US1300 per ounce until 2018 at the earliest.
Despite the US Federal Reserve declaring the continuation of money printing - which should bolster the gold price - the bureau predicted speculation about an end to the stimulus program in the US would weigh on gold prices in 2014.
An era of modest gold prices has taken a toll on Australia's gold mining industry, with several high-cost mines being scaled back or sold over the past six months.
The bureau said that trend should see Australia's total gold production decline slightly, but it said a declining Australian dollar should offer some comfort.
While the gold price is a fundamental spoke in the global economy, the Australian government's coffers are far more influenced by the iron ore price given the steel-making ingredient still ranks as the nation's most valuable export.
The iron ore price has shown surprising resilience through September, remaining above $US130 per tonne for the month.
Some are speculating the strong run could start to fade this week as China slows for a week-long holiday, and the bureau said there was a possibility of a "stronger decline" in the December quarter as extra supply comes into the market.
Iron ore prices of $US119 a tonne in 2014 were predicted by the bureau as the start of a gradual decline towards 2018, when the iron ore price is tipped to average $US91 a tonne.
For context, Fortescue Metals needs an iron ore price in the low $US70s a tonne to break even.
The outlook for thermal coal is less rosy, with the bureau predicting spot prices to fall by almost 10 per cent in 2014, and a further 5 per cent in 2015 on the back of increased supply.
But prices should recover slowly from 2016 onwards.
Frequently Asked Questions about this Article…
BREE says gold has already corrected after a decade-long rally and forecasts continued pressure from speculation about an eventual end to US stimulus. Even though the US Federal Reserve has continued money printing (which normally supports gold), BREE predicts these opposite forces will keep gold below US$1,300 an ounce until at least 2018.
The article notes gold recently dipped to about US$1,290 per ounce and BREE forecasts an average gold price of US$1,275 per ounce in 2014, with prices remaining under US$1,300 per ounce through at least 2018.
The Federal Reserve's ongoing money printing typically supports the gold price because it can stoke inflation concerns. However, BREE warns that market speculation about when the Fed might end stimulus could actually weigh on gold in 2014, offsetting some of that support.
Modest gold prices have forced several high‑cost Australian gold mines to scale back or be sold over recent months. BREE expects total Australian gold production to decline slightly as a result.
Yes. BREE notes that a declining Australian dollar should offer some comfort to local gold miners because many of their costs are in AUD while bullion is priced in US dollars, effectively improving margins when the AUD weakens.
Iron ore remained surprisingly resilient through September, staying above US$130/tonne, but BREE forecasts a gradual decline—about US$119/tonne in 2014 and averaging US$91/tonne by 2018. Iron ore matters more than gold for Australia’s government coffers because it is the nation's most valuable export.
For context, the article states Fortescue Metals needs an iron ore price in the low US$70s per tonne just to break even, so sustained prices well below current levels would hurt high‑cost producers.
BREE expects spot thermal coal prices to fall by almost 10% in 2014 and a further 5% in 2015 due to increased supply, with a slow recovery beginning from 2016 onwards.
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