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Oversupply Won’t Dent
Gold's Allure for Investors this Year

Reuters – Low interest rates are likely to drive fresh investment in gold this year, potentially pushing prices above $1,400 an ounce despite a well-supplied market, an industry report showed on Thursday. Record-high mine output and a dip in jewellery demand will help to keep the market in a surplus of 752 tonnes this year, consultancy Metals Focus said in its Gold Focus 2017 report.

A 5 percent rise in physical investment, equal to 49 tonnes of additional demand, and a drop in recycling are seen trimming the overhang from last year's levels, however.

Despite the surplus, with inflation picking up and only tentative increases to U.S. interest rates expected, negative real short-term rates should drive broader investor interest in gold, and consequently prices, the consultancy added.

"This is the principal assumption behind our bullish outlook for the gold price over the rest of the year," it said. "Overall, we forecast a modest 3 percent increase in the full-year average to $1,285 (an ounce). This, however, hides a far more aggressive intra-year rise to a peak that could be as high as $1,475 before the end of the year."

That would be the highest gold price since mid-2013. Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding nonyielding bullion while boosting the dollar, in which it is priced.

Central bank purchases, which fell by a third last year, are seen easing to a seven-year low of 350 tonnes in 2017. On the supply side, mine output is expected to achieve a ninth straight year of increases, to 3,258 tonnes, while recycling rates seen dropping by 7 percent to 1,202 tonnes.

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