Releasing its GFMS Gold Survey 2017, the 50th in the series of annual Surveys, publishers Thomson Reuters said that it expected prices to remain volatile in the near future, but that the market could regain some composure in the longer run as investors remain averse to risk. The agency predicted that during the year further price gains are likely even against the headwind of the Federal Reserve raising rates, and forecast that 2017 would record an average gold price of $1,259.

GFMS estimated that the Indian market will start to find its feet again, helping to contain price weakness and providing a more stable backdrop for the returning investors. It added that it also expected a dip in mine production and further drop in the rate of growth of total supply, continuing the trend of declining growth in the mining segment seen over the last three years.

The Survey also presents an overview of the market in 2016. On the demand side, the pattern was a mirror image of 2013, it said, when ETF holders and other investors in the western hemisphere rushed to exit the market, on the view that the financial crisis was abating. With an upsurge in geopolitical uncertainty in 2016, there was a widespread return of investors in these regions, GFMS stated.

Total physical demand declined for the third successive year, falling by 18% in 2016, largely on the back of sharply lower jewellery fabrication, although all areas of demand were weaker. The drop was pronounced in India with a 38% year-on-year fall in jewellery fabrciation demand due to the introduction of excise duty on jewellery manufacturing, destocking by retailers in the informal segment, and demonetisation. In China too, higher gold prices, weak consumer sentiment, and a shift to lower carat jewellery were the reasons for a 17% drop in annual fabrication volumes, the third fall in succession that has now seen Chinese fabrication retreat more than 40% below the 2013 peak.

Total identifiable investment, which includes physical bar and coin investment plus ETF movements, gained 52% in 2016 to reach 1,579 tonnes, the highest since 2012, GFMS said. Net official sector buying dropped appreciably, to 257 tonnes, chiefly due to lower Chinese purchases.

While mine supply registered a 0.4%, or 14 tonne year-on-year increase, scrap supply rose 8% in 2016 to 1,268 tonnes, aided by the rising gold price and a 50% surge in Indian volumes. Indian flows were at their highest for more than a decade as higher prices encouraged destocking from consumers, as did a lack of available credit from the domestic banking system.