By: Lawrence Williams
September 13, 2013
Mega investment bank Goldman Sachs’ senior commodity analyst, Jeff Currie, warns that gold could even drop below $1,000 an ounce, but HSBC has raised its 2013 forecast to $1,446.
The problem with forecasts from mega players like Goldman Sachs is that their prophecies can become self-fulfilling given their dominance of the investment banking sector. This is not to say that there is a hidden agenda in their analysts’ pronunciations, but there is always the fear that there could be! Goldman’s infamous ‘sell gold short’ call in April this year immediately ahead of the huge take-down that followed certainly will have raised suspicions on this front, so the market will undoubtedly be taking notice of the banker’s latest reported prognostications.
Thus, according to a report on Bloomberg, Goldman’s head of commodities research, Jeffery Currie (who was also responsible for the April Goldman prediction) suggested in an interview on Bloomberg TV that the yellow metal could see further declines as the U.S. Fed gradually withdraws stimulus (tapering) and as economic data is seen to improve.
If one adds the current reduction of global tensions over Syria into the equation then this may not be an unreasonable statement with regard to the global politico-economic position – although in our view U.S. economic data are at the least indefinite as far as any confirmed advance is concerned – and there are other potentially gold-supportive blips on the horizon – notably the continuing huge demand for bullion in China (which may be enhanced by the Asian powerhouse’s seeming improving manufacturing and PMI data), further uncertainty in Europe, particularly over the PIIGS’ debt positions, and the forthcoming likely divisive politically partisan negotiations over the U.S.’s own debt ceiling – and who knows what else will rear its head in the global political firmament which could have an impact.
A resumption of significant sales out of the GLD ETF would have an adverse impact too, although there’s no discernible direction in these at the moment with holdings remaining fairly stable for the past week or two.
But, Currie warned, Goldman’s own target for 2014 is for a gold price of only $1,050 and he feels it could even undershoot this – which would probably put about 60% or more of the world’s gold mines into the red!
Bloomberg quotes Currie as saying “While we agree with the mid-cycle price somewhere around $1,200, we believe that at least near term it can overshoot to the downside, which is why we have $1,050 as a target… It clearly could trade below $1,000.”
According to Germany’s Commerzbank, sentiment on the market has also not been helped by a fairly negative viewpoint from GFMS, which envisages a further fall in the gold price to below $1,300 per troy ounce by the end of 2014, primarily due to the anticipated reversal of US monetary policy. GFMS also expects global gold mining production to climb this year to a good 2,900 tonnes, despite the fall in the price of gold, although this assessment may be open to question. It will depend to an extent on how much mines move to higher grade sections of their deposits to try and counter the falls in price’s effects on profits.
By contrast, GFMS anticipates, not surprisingly given the lower prices, that the supply of gold scrap looks set to drop sharply to approx. 1,400 tonnes.
Commerzbank also notes that silver was even worse hit than gold yesterday, plunging 6% to a four-week low of less than $21.8 per troy ounce. Silver is thus once again fully living up to its reputation of following gold’s price movements to a disproportionate extent. Here too, the futures market is doubtless to blame for the price slide given that silver ETFs have actually seen inflows of nearly 60 tonnes in the past two days.
However HSBC Global research thinks very differently from Goldman. The global bank points to physical demand for gold as a key driver in the months ahead and has lifted its gold price prediction for the current year to $1,446 an ounce from its prior forecast of $1,396 and is looking for an unchanged forecast of $1,435 for 2014. However these predictions were made ahead of the recent gold price tumble and bank analysts do have a tendency to be reactive in their assessments so we could see some adjustments ahead.
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