Morgan Stanley: gold price won’t see $1,300 again

The commodity analysts at Morgan Stanley are quoted in Barron’s blog that record demand from China “won’t be enough to keep gold’s price above $1,200 per ounce in the coming year, much less help it rise”.

The bank blames a slide in the value of the Chinese currency, the yuan, against the US dollar for weakening demand.

Signs of a drop-off in the world’s top importer of gold are already visible:

Mainland China’s net imports totaled 80.6 tonnes in March, a 27% drop compared to the 111.4 tonnes imported in February.

Compared to the same time last year the drop-off was even more stark – down 38% from the record 130 tonnes in March 2013.

Another indication that there are fewer buyers in China is the disappearance of premiums paid on the Shanghai Gold Exchange.

From premiums that topped out at $37 when gold was trading around $1,200 last year, during March traders on average offered gold at a small discount to the quoted London spot price.

March was the first month since September 2012 that gold did not attract a premium.

Driven in part by a weakening yuan, discounts on gold widened to as much as $9 an ounce below when the price were headed towards $1,400 in March.

Apart from Asian demand issues, factors that have helped gold gain some 8% in value this year compared to a 28% fall in 2013 will also be fading in importance over the course of 2014.

Morgan Stanley argues geopolitical tensions and worries about the US and Chinese economy won’t attract safe-haven buying of gold like it did early this year.

And tepid interest from futures traders and ETF investors will see the metal drift lower this year and next.

Image of gold bear by The Scott