In the consultancy’s latest gold market review and outlook report, it said gold is expected to average $US1259 an ounce this year.
Earlier this week, the gold price peaked at just over $1220/oz and is back at $1180/oz today.
GFMS said the strengthening US dollar and weak physical demand for jewellery were headwinds for gold, particularly in the first half.
“However, as the year progresses, there is a growing likelihood of safe haven flows helped by either or both US and European geopolitics,” the consultancy said.
“In Europe an election result, perhaps in France or the Netherlands, might be responsible, increasing the chances of a country leaving the eurozone, while in the United States a more unorthodox approach from President Trump could increase such flows.”
GFMS said the fourth quarter of 2016 saw the gold market in the largest surplus since the December quarter of 2005, despite a 29% quarter-on-quarter rise in physical demand.
However, physical demand for gold was at a seven-year low in 2016, down 10%, with the increase in price driven by safe haven buying.
While China overtook India as the world’s largest gold consumer, Chinese jewellery demand was still down by 14.8% year-on-year.
Indian jewellery fabrication hit a 20-year low and global jewellery fabrication was the lowest since 1988 in volume terms.