In the past couple of months, gold has been treading water in a trading range that suggests it could be forming a base for another big move. Will the move be up or down?
Scanning a spectrum of analysts, generally the long term outlook for gold is positive, though some analysts have moderated their predictions for gold pricing in the near term because of continued turbulence in the global economic picture. Here’s a sampling of recent gold predictions for the rest of this year and into 2013:
● Merrill Lynch research executive Francisco Blanch says it all depends on the Fed. “We think that $2,000 an ounce is sort of the right number,” Blanch said on CNBC. “We believe that ultimately the Fed will be forced to do quantitative easing. If it happens in September, as our economists expect, we will get a rally sooner in gold. If it happens after the election (in November), we will get the rally a little bit later; probably we will touch $2,000 an ounce sometime next year.”
● Gold “should go to new highs before yearend, that would be my guess,” predicts Eric Sprott, founder and chairman of Canadian fund manager Sprott Inc. “Gold has blown away every financial market in the world since 2000, let’s not forget that.”
● A Reuters poll shows gold experts have cut price forecasts for this year after a sluggish first half, but the yellow metal is still on track to post another record-breaking average price for the year to extend its bull run into the twelfth year.
● Royal Bank of Scotland expects gold to average $1,690 in 2012 (2% less than its previous forecast).
● Canada’s CIBC is another bank that has pulled back on its gold expectations. The new forecast calls for gold to finish the year at $1,700, down 6% from its previous forecast of $1,800. CIBC sees a stronger year for gold in 2013 with QE3 from the Fed likely to propel gold higher to their price target of $2,000.
● Credit Suisse cut its price projections for commodities across the board. For gold, Credit Suisse lowered its forecast for 2012 from $1,765 to $1,680, citing “growing concerns about debt deflation in an environment in which policymakers are seen to have run out of effective monetary policy ammunition.” That is still up considerably from current levels.
● Andrew Su, CEO of Sydney-based commodities trading and advisory firm Compass Global Markets, expects gold to decline over the next few months, possibly falling as low as $1,300 as investors liquidate gold, which has made them money in the past year, to prop up losses in equities. “I also believe that the chances of quantitative easing this year from the Fed are much lower than market expectations and we will see a sustained rally in the US dollar,” says Su.
The optimistic outlook for gold that dominated forecasts earlier in the year has turned more muted but in general remains positive. If the Erste Group is right, the outlook for the longer term is bright indeed. The Austrian investment bank applied the Pareto Principle – which most of us know as the 80/20 rule – to gold pricing and came up with a startling conclusion. Using its findings from the gold bull market between 1970 and 1980 when 80% of gold’s record run popped in the last 20% of the trend, the Erste Group sees gold at $8,300 by the spring of 2015, according to analyst Ronald-Peter Stöferle.
The wide range of forecasts for gold underscores the likelihood of continued volatility for the rest of 2012 and into 2013. Some factors that have sapped a bit of gold’s strength are: 1) the dollar’s strength against the euro, 2) a weak Indian rupee and the government’s pressure to discourage gold consumption, 3) softening of the Chinese economy, 4) shorting or selling of gold ETFs, and 5) concerted attacks on gold in the media by Warren Buffett, Bill Gates, and others.
However, several elements that stand to work in gold’s favor in coming months include: 1) a surge in fear over the breakup of the EU and/or the collapse of the euro, 2) more central bank gold purchases, 3) the continuation of low interest rates, giving gold a level playing field, 4) slow growth in finding and developing new gold discoveries, as the “easy gold” has already been found and new gold is harder to find and more expensive to extract, 5) escalation of nationalization of gold mines in politically unstable countries, 5) new buying on dips by “big-name” buyers, 6) soaring gold imports to China.
Some of the unpredictable wild-card “game-changers” that could ignite a gold bull rocket are: 1) More states and nations installing gold-backed coins or bills, 2) an outbreak of war in rogue nuclear powers, like Iran or North Korea, 3) widespread printing of new fiat money to fight the coming global recession, 4) fear of U.S. growing debt, no matter who is elected in November, or 5) another “sneak” terrorist attack on America.
My own long term prediction for gold is $3,000 likely within five years. For the near term, I expect we’ll probably see gold at $1,800 – $2,000 by the end of 2012 and $2,100 by mid-year 2013.