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 an 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 an ounce in 2014 and remain below $US1300 an 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 goldmining 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 showed surprising resilience during September, remaining above $US130 a 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…
The Bureau of Resources and Energy Economics predicted gold would average about US$1,275 an ounce in 2014 and remain below US$1,300 an ounce until 2018 at the earliest. The article also notes gold recently slipped to around US$1,290 an ounce.
After a decade-long rally, gold corrected in 2013 and the bureau says that, despite ongoing US money printing that can support bullion, speculation about an eventual end to US stimulus is likely to weigh on gold prices in 2014—leading to a modest price environment.
The bureau expects modest gold prices to pressure Australia’s goldmining industry—some high-cost mines have been scaled back or sold—but it says a declining Australian dollar should provide some comfort for local producers by partially offsetting lower US-dollar gold prices.
Iron ore showed resilience in September, staying above about US$130 a tonne. The bureau forecast iron ore at roughly US$119 a tonne in 2014 and expected a gradual decline toward about US$91 a tonne by 2018, with a possible sharper drop in the December quarter as extra supply and a China holiday affect demand.
The article notes Fortescue Metals needs an iron ore price in the low US$70s per tonne to break even. The bureau’s forecasts (US$119 in 2014 falling toward US$91 by 2018) imply a declining price environment that could pressure margins for higher-cost producers, while lower-cost operators may be better positioned.
The bureau predicted a weaker outlook for thermal coal: spot prices were expected to fall by almost 10% in 2014 and a further 5% in 2015 because of increased supply, with prices recovering slowly from 2016 onwards.
The article explains that continued US money printing (quantitative easing) normally supports gold, but market speculation about an eventual end to the stimulus program can put downward pressure on gold prices—an important dynamic noted by the bureau for 2014.
Investors should monitor key indicators mentioned in the article: US-dollar gold prices and bureau forecasts, iron ore price trends and seasonal demand from China (including holidays), thermal coal supply and spot prices, and the value of the Australian dollar, which can cushion or amplify local producers’ returns.
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