Gold prices will reverse their recent lacklustre performance to rise as high as $1,913 a troy ounce this year, according to a closely watched survey of industry forecasts by the London Bullion Market Association.
But for the first time since the beginning of gold's bull market a decade ago, the forecast from 23 of the largest bullion-dealing banks and trading houses stops short of predicting a new high for the metal this year.
The results of the annual survey highlight the confusion among traders and analysts after a year in which gold has struggled for momentum since falling from a nominal record high of $1,920.30 in 2011.
The large majority of analysts remain bullish, arguing that the likely continuation of low interest rates and unconventional monetary policies such as quantitative easing should keep investment demand for gold strong.
All but five of the forecasters predicted that gold would average more than $1,700 in 2013 – well above last year's average of $1,669 as well as Friday's spot price of $1,671.50. On average, the analysts predicted gold would trade between $1,529 and $1,913, with an average of $1,753.
But the precious metal's lacklustre reaction to supposedly bullish catalysts in recent months has forced some to question their assumptions. It has fallen 6.9 per cent from its most recent peak in October, despite a weaker dollar, the Federal Reserve's extension of its quantitative easing programme, and the political dithering over the fiscal cliff.
"Our conviction for continued structural strength in the gold market is being tested," said Daniel Brebner, metals analyst at Deutsche Bank. "There are legitimate arguments being made with respect to an inflection in performance, reversing a more than 10-year trend of appreciation."
Collectively, the forecasting record of the analysts and traders surveyed by the LBMA is strong. They have correctly predicted the direction of average gold prices in each of the past 10 years – when the metal has risen every year – with an average error of about 5 per cent.
Traditionally, they have been overcautious in their predictions for price increases, although last year they were over-optimistic, forecasting that prices would hit $2,055. In fact, last year's high was $1,795.
Demand from India and China, the two largest consumers of physical gold, was weaker than expected last year as growth slowed, weighing on the bullion market.
James Steel, precious metals strategist at HSBC, said: "Indian consumption is likely to recover based on historical consumption patterns. Furthermore, we anticipate strong Chinese import demand."
The analysts also forecast gains for the other precious metals. They said silver would average $33.21 a troy ounce this year, up 6.6 per cent from last year, but that palladium would enjoy the strongest rally – rising 15.5 per cent to average $744 a troy ounce.
Copyright The Financial Times Ltd. All rights reserved.