Gold prices are likely to rule sideways in the next two years, ranging between $1,350 and $1,550 an ounce, according to analysts who spoke at an industry convention in Jaipur during the weekend.

“Gold could drop to $1,275-$1,250 or even lower in the next 2-3 weeks. By the end of the year, it could be in the range of $1,280 to $1,300,” said Jeffrey M. Christian, Managing Partner of CPM Group LLC, at a panel decision on the price outlook for gold at the Indian International Gold Convention.

“Gold could rise to $1,425-$1,430 by the year-end and next year, it could be in the $1,450-$1,500 range,” said Cameron Alexander, analyst at Thomson Reuters GFMS.

“In the short-term, gold could rebound to $1,400 an ounce since speculative shorts are very high,” said Priti Gupta, Executive Member of Commodity Participants Association of India.

Gold has rebounded over 2 per cent since last week on short-covering. At mid-day on Monday, spot gold was quoted at $1,380.73 an ounce and gold futures maturing in December at $1,380.10.

Gold’s movement could be volatile due to a number of factors such as the proposed cut in stimulus package by the US, India’s policies against gold including duty hike, currency movements.

US Federal Reserve Chairman, Ben Bernanke, could come out with plans on pruning the $85-billion a month programme to buy bonds to prop up the economy. India raised the Customs duty on gold to 10 per cent last week and given the uncertainty surrounding the Government’s policies, analysts fear there may be a more bitter pill in the offering.

The US move on pruning stimulus package, on the other hand, could lead to the strengthening of the dollar.

“These factors make prediction on prices difficult,” said Gupta.

“Last week’s rise makes gold vulnerable to a fall,” said Christian.

“Seasonal demand such as Indian festivals and weddings, concern over the situation in the European Union could influence gold. Towards the end of the year, prices could rule firm,” said Alexander.

A poll on the price outlook for the current year at the convention showed that over 70 per cent of the trade participants expect gold to rule between $1,350 and $1,500 in the next one year. A majority again felt that the rupee could be in the 62-65 range against the dollar this year.

Gold could drop to levels of $1,200 in 2015, said GFMS Alexander. However, CPM's Christian sees price in the $1,350-$1,550 range in the next two years.

“It will take gold some 5-6 years to turn aim at the record $1,940 levels it touched in November 2011.

“Investments in gold hold the key to its price movement. Physical consumption should really be high to have any impact on prices,” said Christian.

But Alexander said that physical markets do influence prices to some extent but agree that the investment side sets the price.

“Physical demand in China and India is unlikely to be the same at $1,700 and above,” said CPAI’s Gupta.

All the three were unanimous that fundamentals would come into play once gold drops to levels of $1,250 an ounce.

“There has been a lot of pressure on costs. Labour costs have gone up since the gold market was bearish for 20 years until it took off in 2000,” said Christian.

“Gold miners had to hire competent hands once the market began rising. That led to sky-rocketing of labour costs,” said Alexander.

The current price trend could see miners begin hedging on a large-scale from the next year, he said, adding that it may continue for the next 4-5 years.

“Some have already started hedging. If prices drop to $1,275, mining companies will consider hedging,” said Christian.

Silver, on the other hand, could move rule in the range of $18-23 an ounce and any consolidation in its price is likely only after 2015, said CPM’s Christian.

Alexander said he was bearish on silver and sees it in the $17-18 range for the next 2-3 years.

>subramani.mancombu@thehindu.co.in

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