Scotiabank sees gold price rebound in short term

Gold prices, which are up 10% this year, are likely to continue rising in the short term as more investors bet that demand for the metal will outstrip production, according to Scotiabank.

Prices look set to rise to US$1,350/oz in "coming days" as new mine production lags gold purchases, said Scotiabank Perú analyst Erika Manchego. Gold inventories on the Comex have fallen by one-third over the past two years, according to Scotiabank.

"One can see change in investor sentiment, more favorable towards gold," Manchego wrote in a report. "So far in 2014, contracts betting on a price increase have risen 163%. The change in positions is positive in the short term."

Gold, which slumped 28% in 2013 on a sell-off by exchange trade funds (ETFs), rebounded this year after touching three-year lows, according to Scotiabank. ETFs shed 33% of total gold holdings in 2013, or 72t/month, the bank said.

Part of the reason stems from the fact that few new mines are being brought online and many older mines, such as Newmont Mining's (NYSE: NEM) Yanacocha, are seeing production decline as reserves are depleted. Global gold output is rising 4% a year, according to the World Gold Council.

"Physical gold demand appears to have accelerated while mine production is increasing at minimal rates," Manchego wrote.

China, which last year overtook India as the world's largest gold buyer, nearly doubled gold purchases in 2013 to 2,181t, or 79% of global output, even as world demand rose 21%, according to Scotiabank. China bought 256t in January, outpacing the 240t global monthly output, the bank said.