News
Perfect storm brewing for gold - Société Générale
Bnamericas Published: Thursday, April 04, 2013
The improving US economy and associated dollar strength will lead to rising interest rates and could be the 'perfect storm' to start a longer term bear market for gold, according to a report by French bank Société Générale. The bank is forecasting an average 2013 gold price of US$1,500/oz and expects the yellow metal to end the year at US$1,375/oz. The large gold ETF redemptions in the first quarter and the increasing willingness of investors to trade from the short side also lead the bank to believe that gold may have had its 'last hurrah'. Annual prices of the yellow metal have been rising since 2002 and gold hit an all-time nominal high of US$1,889.70/oz in September 2011. More specifically, the gold price has doubled since 2007 against a background of economic and financial instability, including the deepest recession since the 1930s, according to the bank. Gold's safe haven characteristics and its property as a storer of value have benefited from the resulting marcoeconomic volatility and risk-off sentiment. However, as investor perceptions of the global economy begin to improve, the urgent desire to own gold is tapering off. The yellow metal is now in "bubble territory," according to Société Générale. What's more, the bank believes that investors will be less and less likely to want to add gold to their portfolios as economic conditions in the US improve, heralding an end to the Fed's QE and a strong US dollar. Société Générale's central scenario calls for a "gentle bear market" over the next several years. However, the bank also has an extreme bear case based on the perfect macro storm, although this has less than a 20% probability. A series of consultancy firms have lowered their 2013 average gold price forecasts in the past few weeks, including Goldman Sachs ( US$1,550/oz), HSBC ( US$1,700/oz) and Barclays Capital ( US$1,646/oz). On March 21, Commerzbank joined the posse, lowering its 2013 forecast to US$1,700/oz. At end-March New York-based consultancy firm CPM Group also came out with a bearish outlook for gold and an average US$1,565/oz in 2013. Gold closed Wednesday at US$1,574.75/oz on the London Bullion Market, down from the previous day's US$1,583.50/oz. Gold averaged US$1,671/oz in January and US$1,628/oz in February and US$1,591/oz in March.
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