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AS gold looks set to end roughly where it started in 2014 after a year of range-bound trading, the jury is still out on which way it would head next year.
The expected hike in US real interest rates next year would cast a long pall on the yellow metal, overshadowing other factors that might be supportive for the gold price, said some analysts.
Others, however, are more bullish. In their view, the rise in US real interest rates has already been priced in, and physical demand for gold in China and India would also pick up.
In the latest Federal Open Market Committee meeting earlier this month, chairperson Janet Yellen said that the Fed was unlikely to move till April, and that "monetary policy will still be very accommodative for a long time" after rates begin to rise.
The positive outlook for the US economy on the one hand, and the delay of expectations for a rise in the interest rate till the second half of the year on the other, has a mixed impact on gold, said ANZ commodity strategist Victor Thianpiriya.
After slumping 28 per cent in 2013, credit concerns in China, geopolitical tensions between Ukraine and Russia and poor US economic activity had all caused the gold price to rise in the first half of this year, surprising bearish observers.
But the metal started falling out of favour in July as the US dollar rallied and inflation expectations fell. In November, it touched its lowest point since 2010, before rising again as the Indian festive season got underway. This was later boosted by India's surprise decision to scrap a rule that required 20 per cent of all imported gold to be re-exported. Demand in China, too, picked up due to seasonal factors.
Though gold has stabilised this year, trading within a narrower band of US$260 an ounce compared to US$515 last year, analysts' views for next year have diverged.
Among the more bearish is ABN Amro, which earlier this month adjusted downwards its forecast for gold to US$900 for end-2015, and US$750 for end-2016. The bank expects the US Federal Reserve to step up rate hikes more aggressively in 2016, leading to an even stronger US dollar and lower gold prices.
This could reduce higher cost mining production, resulting in lower supply and increased demand, and hence trigger a recovery in gold prices only after 2016, said its economist Georgette Boele.
Wayne Gordon, a commodity strategist at UBS Wealth Management, is similarly bearish: "US real interest rates are what matters most for the yellow metal. Better guidance to such 'real action' will spark the next leg down for gold."
Higher interest rates strengthen the US dollar, reduce demand for protection against inflation, and increase the opportunity costs of holding non-yield-bearing assets such as gold.
The poor investor sentiment would result in greater liquidation of exchange-traded funds (ETFs), an exodus from which caused the gold price to collapse last year.
This year, investors had continued to sell off gold ETFs, albeit in a "slow bleed" manner compared to last year, said Mr Gordon. "We expect this to continue in 2015, ETF holdings potentially reaching levels not seen since 2009."
About 150 tonnes of gold held by ETFs have been shed so far this year, from 880 tonnes last year, according to Credit Suisse.
Mr Thianpiriya, however, differs on this, expecting redemptions of ETFs next year to slow down.
"Gold has pre-empted a lot of the downside already," he said. "Eventually, when the Fed starts to raise interest rate . . . gold price might not be affected that much because it's come off a lot already."
Analysts, too, disagree on how physical demand would pan out next year.
For Credit Suisse Private Banking commodity strategist Stefan Graber, the removal of the 80:20 rule in India would not have much of an impact, though giving the gold market a shot in the arm in the near term.
Import duties of 10 per cent remain in place, and these are "arguably more relevant", he said. The removal of the rule may help to shift gold that was moving into India through unofficial channels to official ones, but there would not necessarily be a change in underlying demand, he added.
With the Chinese economy likely to cool further next year, and local gold production to expand, imports might not improve much from current levels. "We think the prospects for gold remain subdued as revived physical markets are unable to fully compensate for continued investor disinterest," said Mr Graber.
Mr Thianpiriya, on the other hand, expects greater demand for gold from China and India in 2015.
"Physical gold demand in China and India were held back in 2014 amid high stocks and import controls, respectively. Both these shackles have been removed, putting demand on a solid footing as we head into 2015," he wrote in a Dec 17 note.
While observing that physical demand has helped to boost gold when paper demand has fallen short, OCBC economist Barnabas Gan noted that the former accounts only for about 10 per cent of the gold trade, compared with 90 per per cent from futures, options and ETF holdings.
Recovering global growth coupled with higher interest rates will turn gold bulls to bears next year, he said. "Falling gold prices may be welcomed by physical buyers, but the increased fervency (by them), given that it is responsible for about 10 per cent of total gold trade, is likely insufficient to inject a substantial upside for the yellow metal."