To Early to Call Peak for Gold Price

December 10, 2012 at 08:29

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The precious metal is in its twelfth-consecutive year of gains, but the start of a global recovery may see the price peak.

Garnering the most headlines last week was Goldman Sachs, which said the “cycle in gold prices will likely turn in 2013”. It cited an improving US economy and a rise in real interest rates – the rate of return with inflation taken into account – which would make non-yielding gold less attractive.

However, Goldman did accept that “uncertainty around the fiscal cliff” made calling a peak in gold prices a “difficult exercise”.

Goldman expects the gold price to hit $1,800 (£1,122) an ounce next year and estimates an average price of $1,750 in 2014.

French bank BNP Paribas also sees gold hitting a new record in 2013, before falling thereafter.

“Market sentiment towards gold has been much more uncertain in 2012 than was the case in previous years. Yet, we expect gold to achieve a new record high in 2013 due to further monetary easing, less tail risk related to a break-up of the eurozone and ongoing support from physical demand,” Anne-Laure Tremblay, BNP analyst said.

She expects gold prices to average $1,780 an ounce in 2014, it what would be the first annual decline in the metal’s price in 14 years.

However, near-term prospects look good. Indeed, gold was named by Morgan Stanley’s commodities team as its top pick next year, with the broker seeing no sign of an improvement in real interest rates. “Investment demand [for gold] will remain strong against a weaker US currency, low real interest rates, central bank buying and enhanced geopolitical uncertainty,” Morgan Stanley said. “Gold remains our preferred fundamental metal exposure heading into 2013.”

The US broker thinks the price will be supported by central banks. “The official sector has not been a net buyer of gold each year since 2009, as developed economies’ central banks have sold increasingly small quantities of gold.”

Friday’s gloomy US consumer confidence data may spur the Federal Reserve Open Markets Committee into extra stimulus measures. The Thomson Reuters/University of Michigan preliminary sentiment index in December fell to a four-month low of 74.5, significantly below a consensus view of 82. However jobs data released a couple of hours before was more upbeat.

The news prompted gold futures to move off a four-week low. Indeed, Swiss broker UBS has said that moves in the gold price could be sharp if the US central bank increases asset purchases.

“We expect the announcement of additional balance sheet expansion,” UBS strategist Edel Tully said. “This has not been priced in, so any aggressive move by the Fed would prompt a sizeable response.” Nomura also suggested that there could be further asset purchases, but most observers see the Fed maintaining its current bond buying strategy.

Morgan Stanley’s second-favoured commodity is soybeans, followed by corn, silver and platinum. Its least favoured are aluminium, sugar, nickel, and uranium.

For silver, Morgan Stanley sees the gold-silver ratio averaging 53 in 2013. The ratio is the number of ounces of silver it takes to buy an ounce of gold. Based on Friday’s closing prices, the ratio currently stands at 51.6. It has averaged 60 since 2000.

So it looks like gold’s bull run is not over yet, albeit there are threats emerging to future returns.

However, all of this is predicated on an improvement in the global economy – and the US in particular. At the moment it is difficult to forecast three months in advance, so calling a peak for the gold price could be premature.