Bearish outlook for gold

The outlook for gold is bearish, according to The Bank Credit Analyst Research Group of Montreal, which expects gold prices to drift lower in 1995.

“Prices seem more likely to erode than fall sharply,” writes the company in The Outlook: 1995.

The precious metal, which approached US$400 per oz. in London in 1994, closed last year in the US$380 range. Its low for the year was just under US$370. At presstime, gold in London was trading at US$382.

The Bank Credit Analyst says it is difficult to judge how low the gold price will fall as it is impossible to determine how tight the U.S. monetary policy will become.

“Perhaps there will be a stampede back into bonds and out of gold when the U.S. economic prospects finally cool and trigger a sharp drop in inflationary expectations,” writes the company.

“The key point is that gold will remain under a cloud at least until the monetary policy stops tightening.”

Gold Fields Mineral Services of London, in its Gold 1994: Update II, follows a similar line of reasoning. “The possibility of investors returning to the gold market will be determined in large measure by the success or otherwise of the attempts by the world’s monetary authorities to control rising inflationary pressures,” it writes.

Gold Fields estimates that global mine production in 1994 rose by 1% from the previous year to 2,304 tonnes. Declines in North America and South Africa were offset by increases in output in developing countries, especially in Latin America. Scrap supply remained high last year while jewelry fabrication fell by 1%.

Gold Fields says private-sector investment, which had been the major factor pushing the price up in 1993, was followed by a substantial level of disinvestment in 1994.

The main influence on investment sentiment, it says, was the series of interest-rate increases in the U.S. which diverted funds from gold owing to the resulting higher returns in the money markets.

According to Gold Fields, doubts about gold’s ability in the short term to break through the perceived US$400-per-oz. price barrier led to liquidation of many of the long positions that had been established by the end of 1993.