The Case for $1,390 Gold Soon – and $1,000 Gold Later

The chief economist at HSBC Bank, Robin Bew, suggests that the price of gold will correct down to $1,390/ozt by the end of 2012 and to $1,000 per troy ounce by 2013. [Let’s examine Bew’s views more closely.] Words: 731

So says Stuart Burns (www.metalminer.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and  www.munKNEE.com (Your Key to Making Money!) has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Burns goes on to say, in part:

[HSBC] states [that] there is nothing special about the nature of gold that makes it an ideal safe-haven asset because, were it not for its widely perceived role as just that, gold would behave like most commodities and rise in value during good economic times when demand for its industrial uses increases. Of course, gold has limited industrial uses and, if that were the only source of demand, the price would behave exactly as he suggests. The problem, [however,] is the quasi-financial role that gold has — not quite a currency, but treated as if it were – which imparts it with a special status. Like all currencies, though, it can rise or fall depending on [a variety of]circumstances. Upon accepting that the world has somewhat arbitrarily assigned gold this role, we must review a number of factors that support gold’s price prior to predicting how these may develop in the year ahead, [namely,].

1. Gold’s safe-haven status: As Bew points out; since Lehman Brothers collapsed on Sept. 15, 2008, the price of gold has more than doubled. Demand from investors rose by 73% from 2007 to 2009 and another 24% in 2010, along with demand for other safe-haven assets like US treasuries and the Swiss franc. The yield on all such government debt – US, German, Japanese — has been historically low for much of the last three years with the exception of early 2011, when the community went risk-on and moved out of safe havens and into commodities and other riskier assets. Recently, though, sovereign debt has been very much back in the news and gold has benefited from its safe haven status as the euro has seemed on the point of collapse and the U.S. government seems unable to reach agreement on budget cuts.

2. The fear of inflation: Indeed, in 2009-10 many were attracted to gold as a hedge against the potential for rising inflation as the global economies bounced back in an extremely low-interest and loose monetary environment. HSBC… [however,] …does not see any significant risk of a rise in inflation in the early stages of what will be a weak and prolonged recovery phase. They are expecting a gradual US recovery starting later this year and observe that Japan is already returning to some sense of normality after the natural disasters early this year.

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Why Much Lower Gold Price is Expected

As interest rates rise, the attractions of financing investments in gold will be reduced compared to other asset classes. As a result, the bank expects the price of gold to average $1,390/troy ounce in the fourth quarter of 2011 and fall to $1,000/troy ounce by mid-2013… [providing] the recovery occurs as expected and inflation remains subdued…

Conclusion

As such, some may question if gold really represents such great value [even at its current depressed price], or if they would be better off taking ]what] profits [they have made to date, if any,] while they can.

*http://agmetalminer.com/2011/07/28/gold-asset-or-bubble/

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