Gold price: fall forecast as ‘safe haven’ status withers – The Week UK

Gold futures have settled at their highest level for more than two weeks on the US Comex exchange, but with prices rooted in a very narrow range analysts predict that the price is set for a sizable fall in the coming months.

Marketwatch says the 0.6 per cent rise to a $1,139.80 close in New York made for the best finish since 24 August. In truth, however, spot gold prices have barely moved for several sessions and the $1,140 an ounce at which the metal is trading this morning is identical to where it was at the same time on Tuesday.

This is despite the continuing volatility on equity markets, a state of affairs that might have been expected to give a boost to a precious metal traditionally seen by investors as a ‘safe haven’. Some analysts are now questioning gold’s supposed allure and predicting that with interest rate rises looming in the not too distant future prices are likely to drop.

Barclays says that it expects the already weak demand for physical gold to remain depressed, arguing that the market has already largely factored in a likely rate rise delay.

“We see limited support from physical fundamentals, and further support from US rate expectations should also be limited, as the market is already pricing in a low probability of a September hike.”

Another bank is even more bearish. ABN Amro said in a note, reported by Gulf News, that gold’s “safe haven character” has been “overshadowed” and “reduced significantly” by “the arrival of gold products that opened the market to a wider public”, such as cheap tradeable exchange-traded funds, which are used for “speculation purposes”. The bank predicts prices will fall to $1,000 by the end of the year and even as low as $800 next year.

Some see such forecasts as overly pessimistic, especially as we head into the peak Indian wedding season (which typically boosts demand). But there is little support for a major upwards movement. Rolf Schneebeli, CEO of Gold Services AG, says prices of the precious metal should hover around $1,080 to $1,100 by the end of 2015.

Gold price edges up but mood could turn

01 September

Gold is marginally higher this morning but remains rooted within a narrow range. According to one analyst, the metal is vulnerable to a fresh wave of selling from funds poised to increase bearish bets.

Having risen slightly on the latest Asian market declines, which the Wall Street Journal claims have boosted gold’s “safe haven appeal”, gold continued its gradual positive trend in European trading and was up around $6 an ounce to $1,141. This is still around two per cent off a recent high reached a little over a week ago and, the Journal notes, below the symbolically important $1,150 support level at which rallies have run out of steam of late.

The Financial Times says the gains on Tuesday are the result of a weaker dollar and lower interest rates in the US, which are making non-yielding gold appear more attractive at a time of equity volatility. Traders are also still broadly betting against a US rates rise this month that would pile pressure on commodities and gold in particular.

Some suggest, though, that the mood is brittle and prices could be set for a renewed decline. Firstly there is the uncertainty over rates, with Federal Reserve vice-chairman Stanley Fischer leaving the door open to a rise at its meeting in a little more than a fortnight.

Secondly there are indications that gold’s recent pick-up is the result not of a fundamental bet on further growth but on a repositioning by funds, which could shift back to a more negative stance quickly.

Mining.com reports that in a research note to clients Saxo Bank analyst Ole Hansen says a recent move to a “net long” position by hedge funds – effectively a bet on price rises – was “driven by another big clear-out of short positions” which “puts to rest… the belief that the rally was driven by safe haven demand”. This also means short sellers have “fresh ammunition to pounce” as and when they suspect prices are about to turn back.

Gold price: latest slide exposes myth of equities ‘refuge’

28 August

Gold is not behaving itself this week. Perceived as a traditional ‘safe haven’, the metal should have risen when equities tanked and traders sought refuge, and then dipped just as sharply when equities staged a recovery.

Instead, it fell during Monday’s panicked sell-off, albeit not on the same scale as stocks  – and after holding relatively steady it has started to par some of its losses this week as equities have rebounded. On Friday it is up 0.8 per cent to $1,132, still around 2.5 per cent off a high reached during last Friday but up from a low point this week of $1,117.

While its chart would show less extreme movements than the wild oscillations on broader markets, it has broadly tracked the same trend. Bloomberg notes that the correlation between gold and the volatility index, which measures turbulence in the equities market, is at its “highest level since October 2013”. So what is going on?

Charlie Bilello, the director of research at Pension Partners, which manages around $200m in assets, said this is more normal that you might think. In fact, having studied the movements of gold relative to equity markets since 1976, he says the chances of gold acting as a refuge and being inversely correlated to equities is “as good as a coin flip”.

“The notion that gold always rises when the equity market falls is false. When you have the extreme deleveraging environment, people tend to just flock to treasuries and then sell everything, including gold.”

What does that mean in the short term for gold? Probably not a lot: most traders seem to suggest it is still in the thrall of US interest rate speculation, which is now delicately balanced. A revision to data showed a surge in US economic expansion in the second quarter, adding to expectations of a rise, after a week in which the stockmarket turmoil convinced many that rates should stay where they are.

Howie Lee, an investment analyst at Phillip Futures Pte in Singapore, told Bloomberg that the fact gold is “still holding above $1,100 suggests that the market is pricing in the probability that the September rate hike won’t materialize. It could be a December hike,” he said.

Gold price: is the rally ‘over and done’?

27 August

Gold has recovered slightly after hitting a one-week low overnight as expectations of a US rate hike in September were lowered – but after a sharp decline some analysts are now saying the recent rally is “over”.

As US stocks surged on the back of a huge injection of stimulus by Chinese authorities to support its ailing markets, the safe haven of gold lost out to a move by investors to take on more risk and touched a low of $1,117 an ounce at one point. This, Reuters notes, was its lowest level for a week and marked a 1.3 per cent decline for the day, the steepest fall since 20 July.

Gold is steady at $1,125 on Thursday morning in London, having recovered slightly after a Federal Reserve ratesetter admitted the case for a US interest rate rise in September is “less compelling… than it was a few weeks ago”.

But while the precious metal is up around five per cent from the July slump’s low point, it remains three per cent down for this week despite wild volatility in equities that would normally be expected to prompt a flight to safety. Business Spectator says the “lack of reaction” to weak equities has “puzzled” many market participants – and prompted one analyst to say the recent rally is “over and done”.

David Govett, a precious metals analyst at Marex Spectron, said in a note to investors that gold’s rebound is “over and done for the time being” and that he would now “look to sell rallies in gold above $US1,150 an ounce”.

It is unlikely gold will see a sharp fall in the short term, most agree, but similarly ANZ bank investors have “ignored the metal’s haven appeal” and are unlikely to propel it significantly higher. It could break out of a relatively narrow range as a rates rise comes into sharper focus, but at a time of intense anxiety on markets, prompting unpredictable policy reactions in China, nothing is certain.

Gold continues slide as markets rise – and fall

26 August

Sentiment on gold may have shifted back to bearish as the metal continues its recent retreat from a seven-week high reached at the end of last week – despite volatile trading on equity markets.

Gold was trading down 0.1 per cent on Wednesday morning in London to $1,136 an ounce, three per cent lower than the seven-week intraday high reached on Friday of $1,168. This is in spite of weakness across equity indices, with European markets all showing early one per cent declines after the US and China both finished volatile sessions lower.

Having recovered throughout most of August, as investors shunned risk in the wake of a collapse in confidence in China that culminated in the ‘Black Monday’ crash, gold has noticeably failed to take advantage of the latest bout of volatility. A modest fall on Monday was attributed to investors covering losses elsewhere, which continued on Tuesday as markets rebounded. But as markets fall back again, ‘safe haven’ gold is still in the red.

The Wall Street Journal speculates that the shift may be the result of an improving view of the US economy, with consumers making positive sounds on the labour market in a survey this week and homebuilding back on track after a decline earlier in the summer. This is driving a view that the US is, to a degree, insulated from Chinese woes and that an interest rate rise could still be imminent.

“As to be expected, the calming of fears has taken the edge off of gold,” Peter Hug, global trading director at Kitco, is quoted as saying in a note to clients. However, he adds that “a major swoon in gold prices” is not likely in the short term as uncertainty over the recovery remains.

Gold price slips again as investors bet risk selloff ‘overdone’

25 August

Gold may have escaped the worst of the punishment meted out to other commodities, but it is continuing to wilt despite a second day of falling prices on the Chinese equity markets.

Having hit a high of $1,168 on Friday morning, its highest level since before it fell sharply throughout July, the gold price has been on a steady, if modest, slide. On Tuesday it is trading down 0.5 per cent at $1,148, lending support to  those who said last week it would fail to find support at higher levels.

But why is this traditional safe haven not shining at a time when markets are in turmoil? The Australian says Monday’s fall in the gold price was a result of the dire situation elsewhere, as traders were forced to sell expensive gold positions to raise cash for ‘margin calls’ covering losses elsewhere in their portfolio. A trillion dollars was wiped off markets worldwide in a tempestuous session, The Times notes.

Gold’s decline has continued, however, because the global malaise has not. While China has fallen by another 7.6 per cent, European indices have opened markedly higher and futures trading indicates US peers could follow suit. The Financial Times suggests that while the mood could yet turn sour, as it did in wider Asia overnight after early gains, traders are generally calmer and of the view there is value to be had after an “overdone” sell-off.

In particular, the paper notes that the S&P 500’s 14-day relative strength index is sitting at 18.3, “well below the 30 level that is seen as the threshold to oversold territory”, while measures of volatility are currently double their long-term average. The dollar is therefore up, and the gold price, which tends to move in the opposite direction to the greenback, is down.

Colin Cieszynski, chief market strategist at CMC Markets, told Marketwatch that gold’s failure to rally in the wake of the wider falls on Monday is a sign that its upper limits “may have been reached for now”.

Gold price loses its glitter amid latest China crash

24 August

Gold prices may have recovered in the past two weeks, with China’s troubles sparking a renewed interest in a precious metal that’s widely seen as a safe haven for investors, but as stock losses spread to world markets even gold has tipped into the red.

European indices all opened more than two per cent lower on Monday after Asian markets plunged overnight. The trigger was yet another collapse in China, where the Wall Street Journal reports the benchmark Shanghai Composite exchange shed 8.5 per cent to close at 3,210, “bringing its losses since its mid-June peak to nearly 38 per cent”. The small-cap Shenzhen index closed down 7.7 per cent.

Commodities have also crashed, with the Financial Times noting that an aggregated Bloomberg exchange covering “everything from egg futures to natural gas” fell 1.2 per cent to “its lowest since 1999”. The international benchmark Brent crude oil price has surpassed the $45 a barrel low reached in January and is heading even lower in early European trading.

Gold has displayed relative resilience, but unlike recent sessions, in which it has risen as wider equities and commodities have fallen, it is down 0.1 per cent this morning to $1,159, having earlier been around 0.6 per cent lower. The FT says the metal fell because investors were forced to sell “quality assets to raise much-needed cash to meet margin calls” – that is, to cover expected losses across their portfolios.

Where gold goes from here remains a matter of much debate. Reuters reports many analysts are expecting prices to rise above $1,200 in the coming months as a “currency war” sparked by Chinese devaluation drives investors to a metal often used as a proxy currency. The trade website Mining.com adds that major investors such as hedge funds have moved into a net ‘long’ position based on betting that prices will rise and this could help to propel an upward trend.

On the other hand, many believe the fundamental market position does not favour a gold surge, especially as the dollar remains strong ahead of a US interest rate rise which even the most dovish economists expect in the next year. Last week Citi lowered its forecast for the gold price this year to $1,140 from $1,180 per ounce, with a further fall in 2016 to $1,050.

Gold price: has metal reached a turning point?

21 August

Some analysts are claiming that the gold price is at a “turning point” that will see it reverse losses for the year and push higher, after it continued a recent strong rally and reached a six-week high in morning trading on Friday.

In early European trading in London, spot gold reached a high of $1,168 an ounce, according to the Financial Times, back to levels seen before it endured the largest monthly fall in two years, in July, and around eight per cent higher than its lowest closing price of about $1,080. It has eased back to $1,153, but this is still significantly above levels at which it was expected to face stiff ‘resistance’ from buyers.

Gold is benefiting from a flight from risk across global markets as concern mounts over slowing growth in China. Some believe it is now set for a prolonged surge as it retains its attraction as a currency hedge and safe haven, while others argue that recent waning demand and a capital withdrawal by investors leaves it vulnerable to a renewed slide, especially when US interest rates increase and boost yields on alternative assets.

Mining.com speculated that gold may be at a turning point as further rises will force hedge funds to unwind “short positions”, which are effectively a bet on lower prices, fuelling the rally. Ross Norman of Sharps Pixley told the website that while we “don’t yet have a bull market”, it believes “a figure above $1,240 will certainly give many renewed confidence”.

But Marketwatch cites several analysts who “aren’t confident that the tide has fully turned”. Naeem Aslam, chief market analyst at AvaTrade told the website that technical resistance around $1,160, such as was seen on Friday morning, would trigger “profit taking that could push gold prices lower”.

“The tide has not turned for gold at all and we do not see this trend going for long unless the situation becomes completely out of control in China,” he added.

Gold price rebounds as Fed minutes buoy bugs

20 August

Gold’s rebound is gathering pace as the precious metal posts strong gains in the wake of minutes from the Federal Reserve’s latest board meeting, which some suggest points to a reduced chance that interest rates will rise in September.

Reuters reported yesterday that gold bugs – the name given to investors in the precious metal – pushed it to a one-month high of $1,132 before it eased back, with traders noting “resistance” at $1,135. On Thursday morning spot gold rose further and breached $1,140 an ounce, before again falling back slightly.

The Financial Times says the minutes from the Federal Open Market Committee’s July meeting “seemed to cast doubt on the possibility of a hike in official borrowing costs” in September. While most members judged that “conditions were approaching that point” where a rise would be justified, they also expressed concern over “spillovers” from slower growth in China, the stronger US dollar and the ongoing weakness in the labour market.

Gold has particularly benefitted from the uncertainty on China, which has recently moved to dramatically devalue its currency in a shock move that some argued was aimed at boosting its waning export market. Concerns over growth have also left its stockmarkets in the grip of extreme volatility and led global investors to rush to traditional safe havens – such as gold – to hedge against the risks of a wider ripple effect.

The metal was also boosted this week by a change in tone from analysts at HSBC, who had last month reduced price forecasts. Analysts now predict prices will rise significantly by the end of the year to above $1,200 an ounce. According to CNBC a report from the bank cited a number of reasons for a more bullish outlook, including that an interest rate rise may already be “priced in”. Historically trends suggest a hike in borrowing costs could hit the dollar, which tends to move inverse to gold, and that recent lower prices could spur demand.

Against such forecasts many continue to believe an increase in rates could reduce the attraction of non-yielding assets such as gold, while demand from big markets such as China was actually falling even before the effects of the currency devaluation, which will increase import prices, is counted.

Gold price: China prompts rush to safety, but doubts remain

18 August

The gold price has defied gloomy sentiment and an impending rate rise in the US to record gains during the first weeks of August, but it remains trapped in “narrow ranges” and susceptible to a renewed slide.

Having dipped as low as $1,080 in July after the largest monthly fall in two years, gold has rallied of late as a sharp currency devaluation in China has prompted a rush to perceived ‘safe havens’. But “the price rebound has been moderate”: the precious metal is still 40 per cent down from its 2011 peak and Financial Express notes it remains “trapped in narrow ranges”.

The Wall Street Journal reports that spot gold rose marginally to $1,118 an ounce in Asia trading, where it remains on Tuesday morning in London.

Emphasising the negative perception of prospects which had set in, the Financial Times says data compiled from regulatory filings show institutional investor funds withdrew around $2.3bn (£1.5bn) from major gold index tracking funds in July. Nitesh Shah, an analyst at  ETF Securities, the firm that pioneered low-cost gold tracker funds, said the bearish sentiment is still prevailing and that outflows have been recorded even “in the past few weeks”.

Critical to the near-term trend will be the Federal Reserve’s decision on interest rates, which many still expect to be increased in September. Others say they could remain on hold until December or even into next year. A move on rates would reduce the appetite for non-yielding commodities such as gold and would probably trump any continuing benefit from the China ripple effect.

The FT notes, however, that some more speculative investors are betting the re-emergence of gold as a currency hedge will bring about a more marked increase that will see it break its current shackles.

For example Stanley Druckenmiller, a legendary hedge fund manager who previously worked for George Soros, bought $324m (£206m) worth of shares in one major gold trust at the end of June.

Gold price: demand falls to six-year low

13 August

Demand for gold fell to its lowest level for six years in the three months to June – the result of declining orders from jewellers in dominant markets, as well as from global central banks.

Figures from the World Gold Council reveal global demand fell by 12 per cent to 915 tonnes in the second quarter, the Daily Telegraph reports. Half of this fall was accounted for by sharp declines in jewellery demand in India and China, while central bank purchases fell 13 per cent, the Financial Times adds.

Gold prices have been in broad decline since hitting a peak in 2011 and fell at the fastest monthly rate for two years in July. They have, however, rallied strongly and enjoyed five consistent sessions of positive closes so far in August.

This has been driven most recently by three days of sharp currency devaluation in China that has rattled global markets and prompted investors to flee to traditional safe havens.

Having hit a three-way intra-day high quoted by the Wall Street Journal at $1,026 an ounce on Thursday, spot gold has slipped back slightly to $1,018.

CNBC’s respected analyst Daryl Guppy has said technical analysis suggests gold is struggling to find support at key thresholds and is likely to continue a longer term decline, perhaps taking it below $1,000 an ounce. On the other hand, a prolonged currency ‘war’ could re-establish its credentials as a currency hedge and hold prices higher.

The short-term upward trend is being helped by speculation that a US rate rise is likely to happen somewhat later than previous expectations of September – downward pressure will return when an increase comes into sharper focus.

Devaluation in China will also have the effect of increasing import prices, which could weigh further on demand.