Bank analysts bullish on gold prices

Bank analysts bullish on gold prices

GOLD PRICE NEWS ~ The gold price ended yesterday’s trading session below $1,500 per troy ounce, but the outlook for the yellow metal still remains positive, according to many market observers. Commodity analysts at the Swiss Bank Sarasin expect the gold price to reach $1,650 per ounce by the end of 2012, with strong demand from China and India – as well as from central banks – sending prices higher in the years to come. Accelerating inflation across many developing countries is encouraging more and more people around the world to save in precious metals rather than fiat currency.

Sarasin analysts are in an upbeat mood as far as the medium-term development of the gold price is concerned, despite the yellow metal’s current price correction. The bank’s latest commodity report states that $1,650 is a realistic target for the end of next year. The bank points to the European sovereign debt crisis and central bank gold purchases as offering particularly good support to gold prices. Further liberalisation of the Chinese gold market – such as moves to allow the country’s domestic investors to start buying gold ETFs – would also increase buying interest in the metal. Physical purchases of precious metal have risen to record levels in China and India in the last two years, and Chinese jewellery demand has jumped 21% year-over-year.

The decelerating economic growth in western industrialised countries is also contributing to persistently high investment demand for precious metals as well, since the markets expect the US Federal Reserve to keep their key interest rate – the Federal Funds Rate – at record low levels (around 0.5%) for an indefinite period. As long as real interest rates remain negative, the demand for gold as an alternate savings vehicle will remain. But the analysts at Sarasin also warned that in the long-run efforts to curb inflation by central banks could hit the demand for gold, with investors moving back into higher-yielding paper assets.

Rolf Schneebeli, analyst with Gold Services AG, is more optimistic on the long-term outlook for the yellow metal. He points out that even if the oversold US dollar is rallying, gold will still reach new record highs in terms of other currencies. Last week for example, the pound sterling gold price climbed to a new all-time-high of £958.11 per ounce. According to Schneebeli, precious metals will remain attractive in the long run to investors all over the world who are concerned about the devaluation of fiat currencies.

Recently published data show that speculative net-long gold positions at the New York Comex rose by 54.4 tons to a total of 767.7 tons. While gross long positions rose to 68.5 tons, the speculative short positions increased slightly to 14.1 tons. As Standard Bank analysts note, the jump in net long positions was encouraging, though a large number of last week´s eliminated speculative long positions would not have been recorded in the latest data series yet. The speculative short positions currently quoted at 126.3 tons and were far above last year’s average level of 90.7 tons. Thus, Standard Bank thinks that the gold price is vulnerable to further short-term price setbacks. Read More