More body blows overnight for gold bugs and shareholders in gold miners here and around the world – there was another sharp fall in the world price. Now forecasts are being slashed for the rest of this year and 2014 with the metal is about to experience its worst quarter since 1971 according to data from Bloomberg and other sources, and there could be more to come in the next quarter according to forecasts from a number of leading investment banks.
Those big falls in April and this month will see the metal down by around 27% in this quarter – which is unheard of – if the latest fall overnight is sustained until this weekend. The price is down 23% since the start of April. Investment analysts say the price of the metal is ‘capitulating’ and will go a lot lower before steadying.
Gold ended overnight around $US1,226 an ounce – down around $US50 an ounce or nearly 4% on the latest good news from the US economy. It hit a low of $US1223.54.
The high for the past year was $US1804, according to Marketwatch data, the all time high was $US1,920 in September 2011. Prices are now around their September 2010 levels (as is the Aussie dollar at around 92.70 USc).
Not making it any easier for gold is the continuing improvement in the health of the US economy, and the grown up way markets have responded in the past couple of days to this positive news, as opposed to the juvenile way they sold off last week and on Monday.
Data released so far this week has confirmed the US housing sector is booming, and that consumer confidence is rising and durable orders and investment are strengthening – key signs of improving confidence among businesses.
Jobs and manufacturing data next week will be a major test, but the overall direction of the economy is increasingly positive – hence the Fed’s move a week ago to suggest it will soon start trimming its quantitative easing of $US85 billion a month. Not even a sharp cut in US first quarter GDP (to an annual 1.8% from 2.4% in the second estimate), could stop the surge in shares and the slump in gold from continuing overnight.
This is all positive for the US dollar, and negative for gold and other commodities (copper also fell overnight, again). More negative though for oil prices is the US oil and gas boom which is putting enormous downward pressure on prices, just when prices should be rising because of the improvement in the US economy.
The shale oil and gas boom is perhaps the major disinflationary force in the US at the moment and that is allowing the US economy and the dollar to gather strength.
Inflation, especially in the US, is no longer a big concern – if anything its disinflation that remains a concern for more and more economists and some on the US Federal Reserve.
Traders reckon the June quarter will have seen the biggest fall in gold prices since 1971 when President Nixon shattered the nexus between the US dollar and gold.
Gold has lost around 20% since the start of April and 25% so far in 2013.
The continuing slide has seen more price target cuts by big global analysts and investment banks this week.
Goldman Sachs expects the metal to end this year at $US1300, paring a previous estimate of $US1435, according to an update from the bank this week. Citi is really pessimistic, seeing the possibility of a sub-$US1,100 an ounce price.
UBS, one of the biggest bulls about gold among the banks, cut its forecast price for the metal in a year’s time to $US1,050 an ounce, from $US1,750 – which mirrors the fall in the physical price from the high of September 2011.
Deutsche Bank lowered its 2013 average gold price forecast by 7% to $US1,428 an ounce and dropped its 2014 average price forecast by nearly 11% to $US1,338.
Credit Sussie cut its 2013 average price forecast for gold to $US1400 from $US1,580. And for 2014, it hacked it back to $US1,180 an ounce from $US1,500. HSBC cut its average gold price forecast for this year to $US1396 from $US1542.
UBS and HSBC cut their silver price forecasts as well. Silver is down around 33% this quarter alone.
UBS went to a low of $US17.50 for the next month from $US26 and $US20.50 for three months metal, from $US28. HSBC went to $US21 from the previous forecast of $US26 an ounce.
Deutsche Bank also cut its 2013 silver price forecast by 10% to $US24 an ounce and the 2014 estimate by 13% to $US23.
And finally, the Federal Government’s main resource adviser, the Bureau of Resource and Energy Economics has cut its gold price forecast as well.
It said yesterday that gold could drop by around 13% this year and extend its losses into next year. It said prices will average $US1,444 an ounce this year and $US1,340 in 2014. That compared with a March forecast of $US1,683.
Some analysts advise keeping an eye on events in China as the central bank struggles to control the fear and loathing it unleashed earlier this month with its attempts to control lending. China is the world’s biggest gold miner (topping South Africa in 2007).
