[miningmx.com] — THE gold market is not the most transparent of markets so views on why the metal has shed $100 in the last few weeks to its current three-month low are inevitably diverse.
The fact is, however, gold has traded down to $1,331.86/oz after recording a high of $1,431.25 on December 7. Since 2010 was a banner year for gold – the tenth straight year of price appreciation – you can be sure speculators have been burned lately. “(The) gold shorts are winning,’ as BMO Capital Markets termed it in a recent note.
According to a Bloomberg News report on January 25, some 31 tonnes flooded out of gold-backed exchange traded products earlier this week to about 2,043,09 tonnes. That’s worth mentioning because the stickiness of ETFs have been a marker for robust investment flows into the metal.
From a long term perspective investors were driven into gold by sovereign debt concerns, but these worries are not quite commanding the front pages as they once were. There’s also the somewhat upbeat tone of the Obama administration regarding recent economic data. From a short-term perspective, however, you have to recognise that the gold market is traded by seasoned professionals and institutions and a correction followed by a bounce are to be expected.
The question is whether these long and short term perspectives will reassert themselves. A recent Bloomberg survey suggested most respondents thought gold was in a bubble. True? Analysts polled by Miningmx said gold wasn’t likely to fall off a cliff. They do disagree on its possible trajectory though.
Says Chris Hart, chief investment office of Investment Solutions: “There is a fundamental systemic problem in that we now have a credit-based monetary system.’ As a result, sovereign debt is likely to worsen until “a day of reckoning’ arrives where governments will have to negotiate bankruptcy. This will be positive for gold which, for now, is merely consolidating, he says.
It’s a view shared by Liston Meintjes, CEO of Abercrombie Investment Managers, and who was an asset manager for African Harvest for a number of years. “Quantitative easing is here to stay,’ says Meintjes. “The US has said it will do whatever it takes to bail out the economy.’
Elsewhere, there is scepticism that the dollar gold price will appreciate with quite the same vigour of the last ten years.
David Davis, a gold analyst for Standard Bank Group, is always an interesting commentator to follow if only because he picked the meteoric rise in the gold price.
“I’m against the tide,’ he says of a report first published in October in which he forecast an average first quarter gold price of $1,320/oz, close to gold’s current trading levels. The second quarter’s gold price will average $1,325/oz. One wonders what AngloGold Ashanti will think of that forecast considering it cleared its hedge at $1,350/oz.
“Identifiable investment demand id not progress in 2010. The hype – gold as a safe haven investment – was still there, but it’s difficult to spot the inferred investment demand,’ says Davis. Gold coin sales, for instance, fell to 1.2 million ounces from 1.4m oz, according to figures from the US Mint.
He believes investment demand will be replaced by jewellery demand, especially in India (always the main market for physical gold) and China. “But it’s a long-term, slow grinding jewellery demand.’
Throughout the gold sell-off lately, the speculators have tended to be a little hysterial. Perhaps the investment note from Numis Securities, a UK brokerage, captures the mood somewhat. It reported speculation the French, chairing the G8 currently, spurred on by the Chinese seeking a stronger dollar, have been lobbying for constraints on forex and commodity trading.
More likely, what’s happening to gold was long on the cards. Said ABN/Amro recently: “Although sentiment is bullish for now, there are headwinds that might just derail the expected rise in both base and precious metals. Of these we identify a stronger US dollar, an economic recovery, and potential interest rate hikes later this year.’
