Gold Still Shines
By Greg Peel
The number of times gold has suddenly accelerated well above its underlying trend line over the past few years, and "gone parabolic" as they say, and then sharply fallen back again are becoming too many to count. Such movements were often an annual event even before the GFC. So no one is that concerned that the gold price suffered quite a severe correction in September given it resulted only in a return to the longer term, upward trend.
The trigger for the selling ? that which burst the Johnny-come-lately speculative "bubble" above US$1900/oz ? was once again a sudden cash-raising rush for the purpose of margin call-covering in leveraged stock, commodity and other asset positions. Clearly such a rush was triggered by the deteriorating situation in Europe.
London bullion brokers Sharps Pixley has summed it all up by noting net movements in financial markets in the August-September period. The MSCI developed world stock market index dropped 15% and the emerging world 25%. The US dollar index rose 6% and the US ten-year bond yield plunged 88 basis points. The gold price was extremely volatile, moving either up or down by 3% in a session no less than eight times. The net result was a 15% fall from peak to trough in the period.
The question thus is: has the gold price correction we've seen altered the views and subsequent price targets of investment bank gold analysts? The answer is definitely not.
Sharps Pixley notes that at June 30, the Bloomberg median analyst forecast for the 2012 gold price sat at US$1406/oz. As at October 5, that median is 27% higher at US$1781/oz.
Goldman Sachs has this week reiterated its twelve-month forecast of US$1860 while BA-Merrill Lynch and Barclays are still sitting at US$2000. Credit Suisse has this week raised its forecast by 19% to US$1850, while the prize goes to Morgan Stanley who this week lifted its forecast by no less than 35% to US$2200.
What's driving these forecasts? Well without drilling down into each individual report itself, one need only look to last night's freshly announced quantitative easing measures from both the ECB and Bank of England and the declaration by the Fed that it will do whatever it takes ? read QE3. The devaluation of fiat money will continue around the globe until some time in the probably distant future when the GFC can truly be called a memory.
Looking at the physical aspect of gold, we can yet again note dwindling global supply meeting increasing global demand, particularly out of Asia, and specifically note the anticipated impact of the opening of China's new Pan-Asian Gold Exchange next year. (See Gold Speculation? Here Come The Chinese).
Gold, it would seem, is not about to stop glittering just yet.