 "Gold: Consolidation at current level or a bull market start?")
Why is it when most commodities had had a poor start in New Year, gold and silver were exceptions with bullion backed exchange-traded products globally making impressive gains for major part of January? According to Simon Hunt, chairman of the UK-based eponymous group, Simon Hunt Strategic Services, the decision of Swiss National Bank to delink franc from Euro and European Central Bank's announcement of a $1.3 trillion stimulus programme could be the trigger to "take gold price out of a trading range into a full blown new bull market."
Support for precious metals was growing as funds and futures speculators continued to lose trust in central banks. Prices of gold and silver generally move in the same direction. Since year beginning, silver made much bigger gains in percentage terms than gold. Big imports by China gave a push to silver prices. Bloomberg says despite the recent differences in gains, "gold is trading at 71 times the price of silver, compared with an average of 58 in the past decade". Hunt and some other experts are putting their bets on gold and silver in anticipation of a global financial crisis breaking out late this year, which could have a more devastating impact than the one in 2008. "The crisis could well be the reason for China, Russia and some other countries to begin linking their currencies to gold," said Hunt during his recent visit to India.
Such a development will make former US Federal Reserve Chairman Alan Greenspan happy. Greenspan said recently "gold is a currency. It is still by all evidence the premier currency where no flat currency, including the dollar can match it." China has official gold reserve of 1,054.9 tonnes. For Russia, it is 1,208.23 tonnes after it bought 20.73 tonnes in December, extending gold acquisition to a straight ninth month. Many do suspect, including Hunt, that gold holdings of China and Russia are a lot more than official figures suggest. Gold buying or selling by central banks generally move bullion prices in a significant way. Experts believe gold price rise in December for the first time in five months was due to purchases by quite a few central banks besides Russia. The likes of Hunt may all be positive about gold price outlook based on anticipation of next round of financial crisis but the world is already seeing a bit of price consolidation. As is the experience during the past two weeks, we will be seeing rallies followed by consolidation. Unmoved by price rises in recent past, the World Bank says gold price will average around $1,240 an ounce in the current year and then at $1,225 in 2016. It further says in a report that the entire metals sector is likely to see prices fall by "5.3 per cent in 2015 on top of last year's 6.6 per cent decline". The combination of lower investment demand and likely lower purchases by India and China, known for their voracious appetite for gold will take some shine off the precious metal, says the Bank.
But Goldman burnt its fingers last year given that gold ended 2014 at a significantly higher level than its forecast. Goldman, however, still believes that continuing improvement of the US economy seen in higher growth and jobs and wage rises will draw investors away from gold to equities. "We expect the decline in gold prices to resume from 3Q 15, with the start of the US rate hiking cycle. While our near-term conviction for lower gold prices has declined, our confidence in lower gold prices for longer term has increased on the back of lower expected inflation," says Goldman. What will also bring gold under pressure are lower energy prices impacting marginal mining cost and inevitable shift to the "exploitation phase of the commodity supply cycle."
Support for precious metals was growing as funds and futures speculators continued to lose trust in central banks. Prices of gold and silver generally move in the same direction. Since year beginning, silver made much bigger gains in percentage terms than gold. Big imports by China gave a push to silver prices. Bloomberg says despite the recent differences in gains, "gold is trading at 71 times the price of silver, compared with an average of 58 in the past decade". Hunt and some other experts are putting their bets on gold and silver in anticipation of a global financial crisis breaking out late this year, which could have a more devastating impact than the one in 2008. "The crisis could well be the reason for China, Russia and some other countries to begin linking their currencies to gold," said Hunt during his recent visit to India.
Such a development will make former US Federal Reserve Chairman Alan Greenspan happy. Greenspan said recently "gold is a currency. It is still by all evidence the premier currency where no flat currency, including the dollar can match it." China has official gold reserve of 1,054.9 tonnes. For Russia, it is 1,208.23 tonnes after it bought 20.73 tonnes in December, extending gold acquisition to a straight ninth month. Many do suspect, including Hunt, that gold holdings of China and Russia are a lot more than official figures suggest. Gold buying or selling by central banks generally move bullion prices in a significant way. Experts believe gold price rise in December for the first time in five months was due to purchases by quite a few central banks besides Russia. The likes of Hunt may all be positive about gold price outlook based on anticipation of next round of financial crisis but the world is already seeing a bit of price consolidation. As is the experience during the past two weeks, we will be seeing rallies followed by consolidation. Unmoved by price rises in recent past, the World Bank says gold price will average around $1,240 an ounce in the current year and then at $1,225 in 2016. It further says in a report that the entire metals sector is likely to see prices fall by "5.3 per cent in 2015 on top of last year's 6.6 per cent decline". The combination of lower investment demand and likely lower purchases by India and China, known for their voracious appetite for gold will take some shine off the precious metal, says the Bank.
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Gold is denominated in dollar, which after the Fed announcement that interest rates will stay near zero has appreciated vis-à-vis Euro. A strong dollar makes owning of gold expensive for agencies and individuals using other currencies. Hedge appeal of gold naturally gets reduced for them. Dollar's rise is ascribed largely to investors from the rest of the world buying assets in the US ahead of policy tightening. Speculators in currencies and gold have now got indication that the Fed could finally be raising rates in June. Bearish in gold and anticipating rates changes in midyear, Goldman Sachs says later in 2015 gold could be dragged down by "low inflation and higher US interest rates".
But Goldman burnt its fingers last year given that gold ended 2014 at a significantly higher level than its forecast. Goldman, however, still believes that continuing improvement of the US economy seen in higher growth and jobs and wage rises will draw investors away from gold to equities. "We expect the decline in gold prices to resume from 3Q 15, with the start of the US rate hiking cycle. While our near-term conviction for lower gold prices has declined, our confidence in lower gold prices for longer term has increased on the back of lower expected inflation," says Goldman. What will also bring gold under pressure are lower energy prices impacting marginal mining cost and inevitable shift to the "exploitation phase of the commodity supply cycle."
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