Gold: Fundamentally strong – ANZ

ANZ analysts suggest that gold’s recent price rise has seen it touch a six-year high as rising economic uncertainty and falling interest rates have triggered increased investor interest.

Key Quotes

“While these should remain the key drivers of gold in the short term, we believe the physical supply-demand fundamentals are constructive and should provide strong support for gold in the event of a pullback.”

“With the interest rate cycle turning lower, central bank purchases have risen and the recent pick-up in investment demand should continue. While not without challenges in the short term, as higher prices could weigh on demand in price sensitive countries, we see the physical demand for gold jewellery in China and India forming a solid foundation for growth in the long term. Falling mining investment is likely to dent mine supply in the coming decade.”

“We expect mine supply to peak this year and contract beyond 2020. Weaker and more volatile prices since 2013 have been well reflected in the decelerating supply growth and deteriorating investment.”

“We believe prices above USD1,400/oz is required to incentivise corporates to invest in exploration and the development of mines. This forms the basis of our long term price for the precious metal. In the shorter term, we see investment-led demand pushing it significantly higher than this.”