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Gold prices will remain little changed for much of the year - hovering around $1,650 US an ounce -- as investors shun the safe-haven metal in favour of equities, according to Scotiabank.
Gold prices lost ground in February - slipping to $1,628 US an ounce from $1,671 in January - as investors moved into equities as the Dow Jones industrial average and S&P 500 flirted with record highs.
And Patricia Mohr, Scotiabank's Vice-President of Economics and Commodity Market Specialist, sees the price of gold remaining stagnant in a range between $1,600 and $1,650 an ounce as investors continue their love affair with equities.
"I think the market believes that the Fed no longer really has to increase its quantitative easing from where it currently stands to kick start the U.S. economy and with that I think the market is shifting into U.S. equities and away from gold," Mohr says. "I don't see a big run up in the gold price. I don't see a big run down either."
The overall price of commodities dipped in February after a strong start as a slowdown in China's economy and worries over the financial health of Cyprus eroded enthusiasm, a new report prepared by Mohr shows.
Scotiabank's latest Commodity Price Index dipped 0.9 percent on a month-over-month basis in February led by a decline in the oil and gas index. The commodity index is now 17.2 percent below the April 2011 near-term peak, which was just prior to the advent of concern over excessive euro zone sovereign debt and the negative fallout on global trade.
"In the early part of February commodity prices were still benefiting from the rebound in China's economy, but after China's lunar New Year in mid-February many prices fell back because of some of the economic indicators coming out of China have been a bit lackluster and, of course, more recently we have had the negative news out of Cyprus, which has increased risk aversion in many of the commodity markets," says Mohr.
But she also says the risk aversion factor will dwindle as a rebound in the U.S. economy could prop up commodities later this year.
"I think that it is going to wane because we are expecting a stronger U.S. economy in the second half of the year," says Mohr. "I think that will have a quite a positive impact on many commodity prices and it will be something that underpins the prices upwards and we will probably get over the Cyprus situation."
Oil, which accounts for some 25 percent of the index's overall weighting, led the index lower with a dip of 3 percent on a month-over-month basis. This was on the back of widening discount for Western Canadian Select heavy oil.
The metal and mineral Index also moved lower in February, dipping 0.5 percent, on the back of falling potash and gold prices. Potash prices slowed as farmers deferred fertilizer application until later in the spring and sales were hurt by poor weather in Europe.