LONDON Persistent concerns over the health of the U.S. economy and pressure on the dollar will send gold prices to a record average high this year, Thomson Reuters GFMS said on Wednesday, before the metal's 12-year bull run tops out late in the year.
Gold investment fuelled by negative real interest rates and debt concerns is seen driving prices higher in the first six months of 2013, it said, offsetting a dip in jewellery demand and a rise in mine and scrap supply.
GFMS forecasts that gold prices will average $1,775 an ounce in the first half of 2013, up from an average $1,685 in the second half of 2012, and well above the previous half-yearly record average of $1,693 set in the last six months of 2011.
It expects gold to average $1,847 an ounce in the full year, but monthly forecasts suggest it will peak in late 2013. Prices are expected to remain extremely elevated in the first half of 2014.
The company is forecasting a surge in implied net investment, which covers activity in exchange-traded funds, futures and over-the-counter trading, in the next six months to 152 tonnes, against 59 tonnes in the first half of last year.
That is likely to balance a projected 4.2 percent, or 40 tonne, drop in jewellery offtake -- which is expected to weaken especially in the major Indian market -- a 20 tonne rise in mine output and a 57 tonne increase in scrap supply.
"I think we could see investment in a number of arenas, and at a higher set of prices," GFMS' head of research Philip Klapwijk said. "Commentary on the dollar/euro has shifted in recent months from being very bearish on the euro. We don't see much scope for dollar appreciation this year."
"We are also expecting the Fed will continue with its asset purchase programmes, and that we won't see these cease in 2013," he added. "We think the U.S. economic performance will disappoint this year."
Implied net investment more than tripled last year, GFMS estimated, to 354 tonnes from 104 tonnes in 2011, picking up the slack after physical bar investment fell by a fifth to 961 tonnes. Jewellery buying, the largest demand segment, fell 4.4 percent to 1,885 tonnes.
Global coin minting is forecast to have dropped to a four-year low of 199 tonnes, down 19 percent from the previous year.
High prices weighed on demand from jewellers last year, particularly in price-sensitive Asian markets such as India, historically the world's largest consumer of the precious metal.
Jewellery fabrication demand in the Indian subcontinent fell 11 percent last year to 624 tonnes, and was down in almost every individual region. It rose 5 percent in the Middle East, however.
INDIAN DEMAND EXPECTED TO EASE
Fabrication demand from India and its subcontinent is forecast to fall to 322 tonnes in the first half from 348 tonnes in the same period of 2012.
Indian jewellery demand is expected to dip 9 percent in the first half, leaving it at a four-year low.
Fabrication demand in east Asia, which includes China and smaller markets such as Hong Kong, Taiwan, Vietnam and Malaysia, is expected to dip just over 2 percent to 465 tonnes.
Chinese jewellery fabrication demand fell in 2012 for the first time in nine years, though by only 1 percent.
Chinese fabrication demand failed to take over from that of India, still the world's biggest overall gold consumer, as it had been forecast to do.
"Though we expect this year that China could take on a firmer tone, we're still concerned about prospects for India," Klapwijk said. "That has provided a slightly less secure floor for the price, as opposed to a rising floor."
Bullion demand from central banks, which have turned from net sellers to net buyers in recent years in a bid to diversify reserves, is forecast to remain relatively steady in the first six months of the year at 280 tonnes, against 277 tonnes in the same period of 2012.
Gold buying from the official sector rose by 79 tonnes to a 48-year high of 536 tonnes last year as a whole, GFMS said.
On the supply side of the market, mine supply is expected to tick up 1.5 percent to 1,389 tonnes in the first half.
Recycling of gold scrap is set to increase a weightier 7.5 percent, with scrap flows rising in the Middle East, east Asia and India, falling in Europe, and stagnant in North America.
Scrap supply from the Middle East is expected to climb nearly 18 percent to 192 tonnes, and by a similar percentage from the Indian subcontinent, to 91 tonnes.
(Reporting by Jan Harvey; Editing by Alison Birrane)