Gold down to $700 – or up to $7,000? – Diametrically opposed viewpoints.
Bulls will be bulls and bears will be bears. Contrasting viewpoints on the likely path of the gold price abound – no wonder the investor who relies on advice from recognised ‘experts’ in the field just doesn’t know which way to turn – and why the huge majority have continued to ignore gold as an investment or wealth protector all the way through the yellow metal’s bull run.
The latest ‘expert’ to see his airs viewed on no less a website than that of U.S. based CNBC – the self styled ‘recognized world leader in business news’ – is Yoni Jacobs of Chart Prophet Capital who is most definitely in the bear camp as far as gold is concerned.
“Technical levels show us when the trouble is coming. Gold struggled at $1,700 and then at $1,600. If it breaks through the next key level of $1,500, which could be approaching soon, investors would start panicking and selling hard,” said Jacobs. “It appears that the market has decided on gold’s fate. And it’s not looking pretty. It looks like gold is about to see prices collapse and is on its way to $700″
Jacobs thus joins a number of others who have been talking down the gold price throughout the 11+ years of its current its bull run. . Indeed at some stage gold will likely go out of favour and the price could then collapse as the gold ETF holders in particular start divesting. The big question is at what level gold will be when such a sell-off becomes a rout. If it is the current level, then Jacobs could be right in his views. If, though, gold is several times higher than it is today when the cyclical top is reached, then any collapse could be to a level well above even the current gold price.
So far there is little sign of any weakness among holders of the ETFs and we would argue that as long as there is so much financial uncertainty in global economies then the major underlying gold holders will continue to sit on their gold investment purely as a true and tested safe haven.
There is, of course, much talk at the present time of gold no longer behaving as a safe haven, but again one would counter argue that it is only on the day-to-day short term trading fringe that this is true. The safe haven holders are well and truly embedded with their gold holdings and that the vast majority of the gold in private and long-term institutional hands is indeed safe-haven gold – and will remain so at least until global market uncertainty subsides, if not well beyond that. These are the holders in there for the long term and short term fluctuations up and down are largely immaterial to them. Wealth preservation and portfolio diversification is the key here.
But how about the other predictions? There are plenty of gold bulls out there looking for $7,000 gold, or even much higher over the medium to long term. For the purpose of this article we admittedly pulled the $7,000 figure out of the air as a contrast to Jacobs’ $700 – we could equally well have used $10,000 – or any level between the current price and that advanced height. There are plenty of analyses and predictions covering virtually any eventuality. But taking the precise $7,000 figure – only recently Bank of America technical analyst MacNeill Curry – an Elliott Wave Theory proponent – reckoned that despite fluctuations which have taken gold down close to nearly $400 below its last-September $1920 high, this kind of volatility was nowhere near extreme enough to convince him the precious metal’s long-term uptrend was nearing finality. Nothing in the gold price pattern since will have changed this technical assessment.
Curry was quoted as saying any long-term commodity advance tends to end with, “a massive speculative blow-off. They don’t end quietly,” he said and projected that gold will ascend to levels somewhere between $3,000 to $5,000 and potentially $7,000 per ounce before the rally comes to an end.
So there you are. Two hugely diverging viewpoints to confuse the prospective gold investor. The writer’s view is to err mildly on the bullish side of the argument. There’s too much uncertainty out there and gold tends to thrive on global economic uncertainties. While the West’s deflationary environment may count against stock markets in general and commodities, it won’t necessarily bring down the gold price – indeed gold can thrive in periods of both inflation and deflation. There is virtually certain to be more monetary stimulus in Europe and the U.S. – which should also benefit gold, while Eastern markets for the yellow metal remain strong overall and are soaking up a huge amount more gold than they used to.
As far as new mine production is concerned, any increase will be limited and the recent relatively range-bound gold price will be making prospective developers perhaps delay more marginal propositions and the banks look again at the cost of some of the horrendously high capital cost mega projects which are the only ones likely to have any significant impact on global gold output. Most of the traditional gold mining countries are seeing continuing production declines from aging mines and declining grades, while the country seeing the biggest rise in gold output, China, does not export its production to external markets.
While the writer sees the path of the gold price as likely to move upwards, albeit fairly modestly in the months ahead, it does seem to be taking a breather at the moment. However, it also seems to have found a recent floor at around the $1560 level and is back above $1600 at the time of writing. That the continuing Eurozone crisis is having a positive impact on bullion demand is seen by at least one Swiss vaulting company having to expand its secure vaulting facilities because of the inflow of privately held gold into Switzerland. Ongoing negative interest rates, which seem likely to continue in Europe and the U.S. until at least 2014 also are contributing to gold’s appeal.
Re the prospect of gold ETF sales, it is interesting to note that although gold held by SPDR Gold Shares, the world’s biggest gold ETF, did fall back by 5 tonnes in the past quarter – a pretty infinitesimal 0.4% drop – this has been more than countered by increases in holdings by other gold ETFs – notably that of London-based ETF Securities, which rose by 13.2 tonnes. Silver ETFs have been seeing continuing rises too. So an ETF sell-off certainly does not yet seem to be on the horizon yet.
As to the writer’s personal view as to where the gold price is headed this year, in Mineweb’s gold price competition at the beginning of this year he forecast a year-end gold price of a fairly conservative $1875 and a high for the year of $1985 and still sees no need to change these predictions.