Posted on 02/09/2010 7:28:01 AM PST by dennisw
LONDON (Commodity Online): In the last few months, we have been reading predictions and forecasts from bullion analysts who insisted and argued that gold price is booming to touch $2,000, $3,000, $5,000, $10,000 per ounce in the coming years.
These forecasts have caught people’s attention who have been pouring money into gold and other precious metals all these months. But after the big surge of gold price to $1,227 per ounce some two months back, the yellow metal has been climbing down the ladder of speculation.
Despite speculators going on the 'boom-in-gold-price predictions', the yellow metal price has been sinking in the last two months. "If the gold price fall continues like this way, it is certain to touch down to $1,000 per ounce or below this level in the next one month," says bullion analyst Mark Robinson.
Robinson, who is not a great bull on gold, says even if gold price falls to $900 or $800 per ounce, people should not complain. "For those who have invested in gold some years back, even $900 or $800 per ounce is a great price tag. So, there is no room for complaints even if gold price falls to realistic levels," he said.
Robinson, a keen bullion watcher focusing on China, says that the Chinese government wants gold price to plunge to $800 per ounce level. "China's biggest ambition these days is to build up gold reserves. For this, the best thing that China wants is a big fall in gold price so that it can buy more gold from IMF, gold miners and from the physical bullion market," argues Robinson.
It is not just Robinson who is a bear in gold price forecast. On Monday, a senior analyst with Citigroup came out with purely bearish prediction on gold. Citigroup bullion analyst Alan Heap said that gold prices could sink to $820 an ounce by 2014.
Here is that interesting article that TheStreet.com published on the bearish prediction on gold:
"NEW YORK (TheStreet) -- gold prices could sink to $820 an ounce by 2014, in the absence of inflation or strong demand from China, says a Citigroup analyst
Alan Heap, an analyst at Citi Investment Research, adds a bearish voice to a crowded debate over where the precious metal is headed. Billionaire investor James Rogers and perma-bear David Tice say gold will hit $2,500. James Turk , Author of GoldMoney, predicts $8,000, while author Mike Maloney is betting on $15,000.
Over the last decade, gold prices have soared from $250 an ounce to an all-time high of $1,227 an ounce, with many analysts believing that gold is in a continued bull market despite short-term pullbacks. Heap broke with this bull view by saying in a research analysis, "Gold: Paper Problems," that prices will sink to $820 by June of 2014 and head lower long term to $700 an ounce.
As global economies print more money and lower interest rates to survive financial crises, gold becomes popular to own. As paper money loses value, investors turn to gold as an alternative safe haven asset.
As gold prices hit a record high of $1,227 an ounce, the U.S. dollar started to move towards its all-time low of $71.40. As the dollar loses value, commodities become cheaper to buy in other currencies. Many analysts expect low interest rates, President Obama's $3.8 trillion budget plan, a raised deficit ceiling and money printing pressure the dollar and buoy gold prices.
Over the last 10 years, investors have been diversifying into gold more than any other asset class. You no longer have to be a doom and gloom analyst or store gold bars in a bank in order to own the precious metal. Average institutional investors and world central banks have been increasing their gold holdings supporting high prices. Helping investors buy gold is the emergence of gold ETFs. There are now three physically backed ETFs available SPDR Gold Shares(GLD Quote), iShares Comex Gold(IAU Quote) and ETFS Gold Trust(SGOL Quote).
Central banks have become one of the biggest buyers of gold. Countries increase their gold reserves on a percentage basis, usually irrespective of the spot price. In the past year, countries like China, India and Russia have transitioned from being net sellers of gold to net buyers. Portugal holds 90% of its reserves in gold, while the U.S. has 70%. China currently only holds 1,054 tons of its reserves in gold, which is less than 2%.
The biggest threat to rising gold prices is a substantial decrease in long positions in paper markets, Heap writes in his report. "Positions held by money managers and broader non-commercial positions have fallen since November 2009 when the USD strengthened. Non-commercial net long positions are at 5x the average levels seen over the last 17 years."
The Euro reached a seven-month low against the U.S. dollar Friday, as sovereign debt fears in Spain, Portugal and Greece continued to devalue the currency. The dollar is playing the role of safe haven asset for investors jolted by global economic recovery fears lead them out of riskier commodities. There is also an expectation that the Federal Reserve might raise its key interest rate target sooner than expected, which would also support the currency.
The most popular physically backed ETF SPDR Gold Shares(GLD Quote) has seen a decline in tonnage since the beginning of 2010 from 1,128.74 to 1,104.54. Heap noted that ETF holdings are high, but stable. As long as worries over a global banking crisis subside, holdings should remain flat.
A big driver for gold prices in 2009 was pent up demand from China. The country has recently increased its gold reserves to 1,054 tons from 600 tons and is expected to continue diversifying. However, recently the Chinese government ordered banks to increase their reserve ratio by 50 basis points and has encouraged them to restrict lending. China is targeting an 8% growth rate for 2010 instead of the 11% analysts had anticipated.
China's emerging middle class has also unleashed significant gold buying in the physical market. According to the Citi report, from September 2008 to September 2009, China retail demand grew 20 tons out of 260 tons globally. There are worries that the country's $585 billion stimulus program is slowing down, which would curb gold demand from retail investors as well as central banks Gold is typically seen as a hedge against inflation as investors buy the precious metal as an alternative asset. But Heap argues that it's not actual inflation that correlates to gold prices, but inflationary expectations. According to the figure above in 2009, the U.S. Consumer Price Index dipped into negative territory, which means no inflation at all. However, gold prices kept rising. Heap thinks that inflationary expectations would have to skyrocket to boost gold; just a pick-up in inflation wouldn't be the big mover in prices many analysts anticipate."
I will copper the bet!
I will see you and raise you 5 fig seeds...
I think we will see a global debt explosion and gold soaring!
ping for your perusal, my friend.
Is Landru AWOL?
Haven’t seen him post lately.
I hope so.
Cuz, I’ll empty out my accounts and buy like a broad at Bloomingdales at the Saturday morning sale that goes on from nine o’clock until noon, ONLY.
heh
My take is that China and India will believe that the dollar
is as strong now as it will be for the foreseeable future.
The are forced to purchase our debt to keep the dollars flowing but they also have to dispose of the balance of the
dollars they have. They are doing a good job of investing in future energy projects and propping up the US stock market.
As a hedge and to insure that their currency is stable they will have to make major gold purchases. The trick for them is to do this with out raising the price substantially.
Cash for gold has worked out well. No one knows how much junk gold they have purchased.
I think any dip in gold prices will be temporary. I can’t see that anything has fundamentally changed. Has our government turned the economy around? Is it spending like a drunk sailor? Is the government still printing funny money? Is the dollar strong? Has manufacturing resumed in this country? Have the jobs come back? Have tax revenues gone up? Have the Chinese and other nations stopped buying gold? Has anything upset mankind’s 5,000 year infatuation with gold?
If there is a debt ex or implosion, *and* a flight out of the Euro, we have seen these factors strengthen demand for USDs, which crushes gold prices.
Though I own a load of silver, and have for many years, and am very mildly bullish on the PMs, ultimately, I believe that *some* dollar-denominated assets will far outrun gold. The main reason I believe this (and I could easily be wrong) is not any kind of interconnection between or among currencies or inflation or geopolitical fears....it is because our monetary masters, the boyz at GS, do not like speculating in materials or instruments where they are not in control of the inflation and leverage, manipulation and creation of same. In other words, bluntly, it’s not a “pig-man” asset.
Ping.
I hope it does go to $800/oz, because I need to get about 10 more oz before I’ll be satisfied. Bought just a single ounce gold yesterday (4 x 1/4 oz Eagles) and 20 more Silver Eagles. Been paying the extra premium to get fractional ounce gold coins, down to 1/10 oz. Every two months or so I’ve been buying what I can afford.
The elephant in the room is the fact that as a country we owe trillions of dollars, and, quite simply, we’re not going to pay it back unless we inflate the hell out of the dollar. So if we’re not going to pay it back, what IS the plan? Default or hyperinflation means that folks should keep some portion of their savings in physical gold and silver, because the dollar won’t be worth much, but an ounce of gold will always buy you a decent horse.
I agree and thanks for the ping.
Hopefully, by 2014 we will be out of this recession, back onto a growing economy, and gold prices will lower as goldbugs sell their yellow stuff to buy equities.
I think you have a valid argument for a portion of the phenomena that we are entering into.
There are the known knowns, known unknowns, and the unknown unknowns.
Risk management calls for the acknowledgment and management of the knowns. My feelings are that we live in a very risky world right now where stability is low in every area increasing the probability of the known unknowns and the unknown unknowns. IMO
I’ve been investing a lot in metals lately.
All lead and brass
Gold is inflation protection but it is also currency panic protection. When you are nervous about the US issuing a new currency. If you are worried about banks not letting you withdrawal your money. If you are worried about states and county and city bonds going into default
“NEW YORK (TheStreet) — gold prices could sink to $820 an ounce by 2014, in the absence of inflation or strong demand from China, says a Citigroup analyst
Maybe we could become an energy producer, at a time when there is greatly increasing demand. Of course, we would have to not increase spending at the same time [if I go to DC for Apr 15, I'm gonna have a shirt or sign that says "no offense to drunken sailors"].
If you have any links to good info on getting started with physical gold/silver, I'd appreciate it. It's something I really want to do.
I think today in the markets illustrates precisely my point, magnificently, if I may say so.
The market does not care that Greece is falling off a cliff, it in fact is rejoicing that there is someone or something to bail them out and yet again kick the can down the road. Never mind Ireland, Italy, or Spain. Those will be tomorrow’s news. One could also guess or say or theorize that the Greece news was already baked into the sub-10K drop in the DJIA.
And those who think that infinite money printing will help gold et al, yes, it will. However, I think it will help synthetic assets like stocks certainly as much and probably more, perhaps twice as much as it will gold. Because with infinite money printing, there is not only the value reflection for the demeaned dollars, but there is further disdain for the inflated currency which translates into an unwillingness to sell. Yes, that phenom affects both classes, but the leverage available in the synthetics will cause them to outrun gold. Again, IMHO. Also, the Fed knows that consumer confidence is closely tied to a green stock market. The Fed can control the stock maraket like a marionette; it cannot do much to affect employment, which is obviously a more fundamental basis for a renewed consumer.
I am not telling you that I am joyously buying stocks at these levels, IOW, I personally am not able to execute my strategy very well. But I *do* think what I am saying is the best description of what will actually happen.
>>>infinite money printing will help gold... synthetic assets like stocks certainly as much and probably more, perhaps twice as much as it will gold....further disdain for the inflated currency which translates into an unwillingness to sell.... The Fed can control the stock market like a marionette...
You may be right, but it seems to me that when you walk into a poker game and see the game rigged by rampant cheating (bank statements, government statistics of all kinds, federal governmental employees of any ilk, Wall Street firms, publicly traded companies with their off-balance sheet reporting), the correct modus operendi is to walk away. Sort of like the old wag that if you walk into a poker game and don’t know who the mark is after 5 minutes, then you’re the mark.
Perhaps more effective would be to identify, like you did partially, all the factors that affect gold prices. Examples might be: high real interest rates are bearish for gold, high nominal interest rates are not (because it depends on how tax rates and inflation affect real interest rates). Fears about government collapse or banking collapse are bullish for gold, etc.
Of course, no one can predict the markets. At best, he/she can come up with favorable trading strategies.
All agreed; nobody *needs* to be in the market.
Even if you correctly identify all those factors, it’s stretching credulity to imagine you could correctly weigh them on a relative basis. And of course, the market doesn’t care about an intellectually or logically generated “should” scenario...yours or mine or anyone else’s. It has only its’ own reactions, and only price pays.
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