* Gold seen averaging $1,259/oz this year, says GFMS
* Physical gold surplus hit highest since 2009 last year
* Gold jewellery consumption falls to 7-year low
By Jan Harvey
LONDON, March 31 Gold prices will edge higher
this year even in the face of a persistent surplus of physical
metal, GFMS analysts at Thomson Reuters said on Friday, as
jitters over the U.S. and European political backdrop drive
investors to bullion.
Buying of gold as a haven from risk, plus a recovery in
Indian buying, are likely to push prices to an average $1,259 an
ounce this year, the team said in its Gold Survey 2017, up from
$1,248 an ounce last year.
"As the year progresses ... safe haven flows become
increasingly likely, assisted by either U.S. or European
politics or a combination thereof," GFMS said.
"An anti-EU election result in one of the European nations
could raise uncertainty over the prognosis for the euro, while
an unorthodox approach from President Trump may bolster
investment activity. The markets are also jittery as to whether
U.S. equities have gone too far, and gold is expected to benefit
from risk aversion."
That will likely support prices even in the face of
persistent oversupply. The physical gold market surplus swelled
to a seven-year high of 952 tonnes last year, GFMS said, and
will likely persist in 2017, albeit at lower levels.
Total physical demand fell 18 percent to 3,559 tonnes in
2016, largely due to sharply lower jewellery fabrication, it
said. Gold jewellery consumption slid by a fifth to a seven-year
Of the two biggest physical gold markets, Indian jewellery
fabrication fell 38 percent, due in part to the introduction of
excise duty on jewellery manufacturing, while Chinese
fabrication slid 17 percent.
Identifiable investment, which includes buying of coins,
bars and exchange-traded funds, hit its highest since 2012
meanwhile at 1,579 tonnes, with a seven-year peak in ETF buying
offsetting softer demand for coins and bars.
Central banks were net buyers of gold for a seventh year in
2016, though they bought the least since 2010, at 257 tonnes.
GFMS forecast 250 tonnes of buying this year, with Russia
continuing to drive purchases and China re-starting reserve
building after four months of no changes to its holdings.
GFMS expects mine supply to contract from this year onwards
after hitting a record 3,222 tonnes in 2016.
GOLD MARKET SUPPLY/DEMAND (T)*
SUPPLY 2016 2015
Mine output 3,222 3,209
Scrap 1,268 1,172
Net hedging supply 21 21
Total 4,511 4,401
Jewellery 1,891 2,395
Industrial fabrication 354 365
Central bank buying 257 436
Retail investment 1,057 1,162
Physical demand 3,559 4,357
Surplus/deficit 952 44
ETF inventory build 524 -125
Exchange inventory build 86 -48
Net balance 342 217
* GFMS Gold Survey 2017
(Reporting by Jan Harvey, editing by David Evans)