The above are edited excerpts from an article* by Tanya Jefferies (thisismoney.co.uk) originally entitled Fresh sell-off by gold speculators could send price plunging to $1,150 an ounce next year, says forecaster: What next for gold?
The following is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here). The excerpts may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Jefferies goes on to say in further edited excerpts:
Rationale for Gold Prices Falling Further
Speculators’ expectations of what interest rates on 10-year US government bonds are likely to be…the key initial trigger and driver of gold prices, suggests…TD Securities, head of commodity strategy Bart Melek, [who] expects these relationships to stay mostly intact over the next few quarters, mainly due to uncertainty surrounding the timing of stimulus reduction by the US Federal Reserve and its economic impact.
“In short,” says Malek, “the market’s inability to project future real Treasury interest rates (yields on 10-year US government bonds) into the future with a great level of certainty makes this market subject to abrupt sentiment changes. This is mainly due to the fact that the Fed, and indeed other central banks, does not know what the appropriate level of real interest rates should be in the aftermath of the “Great Recession”. After taper starts and ends, gold is likely to be driven more by fabrication demand and physical investment, with spec interest maintaining less of a role.’
Malek adds that a ‘strong growth bias’ in the policy of Western central banks and the ‘existential systemic risk’ this represents is a reason why gold should be well supported near $1,000 an ounce into next year.
In the charts below TD Securities illustrates how speculator expectations of what interest rates on 10-year US government bonds are likely to be in future influences the gold price.
Demand for physical gold is strong right now (jewellery, bar and coin has risen 26 per cent year-on-year in the first three quarters of 2013)…[as] the U.S. central bank’s vast quantitative easing programme has prompted investors to buy gold as a safe haven and hedge against inflation in recent years (although inflation has so far remained muted in countries experimenting with QE) but “the strength in the consumer demand was more than offset by the ETF divestment and the Indian gold demand clampdown by the government” suggests bullion broker Sharps Pixley chief executive Ross Norman…
Potential Triggers for Gold Prices Rising[In addition to the above rationale for gold prices falling in the near future are]…the findings of a CEBR report conducted for CoinInvestDirect…that [identified] potential triggers for gold prices rising, namely:
- another US debt ceiling bust-up in the New Year,
- tapering of the Fed’s QE programme,
- inflationary pressures from oil supply disruptions,
- demand from middle and lower income countries and central bank purchases…(the BRICs – Brazil, Russia, India and China – economies have doubled their gold reserves since 2003).
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
* http://www.thisismoney.co.uk/money/investing/article-2507925/Gold-price-set-spiral-1-150-2014-says-TD-Securities.html (© Associated Newspapers Limited)
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