Gold bears cut their price forecast again
Bearish Societe Generale analysts, who forecast the gold price crash earlier this year, are cutting their estimates as "the bubble deflation has further to run"
The analysts had forecast a 15% fall in the price of gold for this year in a special report released at the beginning of April, in which they were setting a price target of $1,375 per ounce by the end of the year.
Prices fell below their target in April, faster than they had expected, and although some strategists are beginning to forecast a rebound in the price of gold, the Societe Generale analysts have lowered their target to $1,200 for the fourth quarter of this year.
"We believe that the dramatic gold sell-off in April, combined with the prospect of the Fed starting to taper its QE programme before year-end, has resulted in a paradigm shift in many investors' attitude towards gold," they wrote in a new report released on Monday.
This change in attitude is likely to result in ongoing selling of gold ETF this year and next year, exceeding higher demand for jewelley and bars and coins, the analysts predicted.
They pointed out that in recent years investors had become the "dominant buyer" of physical gold, pushing the price higher on fears that money-printing by major central banks could flare up inflation. But now with inflation remaining low and the economy beginning to recover, they expect "large-scale gold selling from investors who bought gold as a hedge against medium-term inflation."
Gold bulls have said that because ETF holdings make up only slightly above 1% of the total stock of gold, ETF selling is not that important when trying to gauge the future direction of gold prices.
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But the SocGen analysts argue that this comparison is not relevant.
"The relevant comparison is annual supply/demand for physical gold. For example, the current ETF holdings amount to 78% of 2012 mining output. So large-scale ETF selling would be equivalent to a substantial increase in supply and would therefore tend to put heavy downward pressure on the gold price," they said.
ETFs have been net sellers of gold almost every day since the price crash in mid-April, amounting to 4.5 tonnes of gold sold on average per day, they estimated.
The recent surge in demand from retail investors for bars and coins will be temporary, as these investors will change their mind once they see the gold price revisiting their April lows or even breaking below them, they said.
"Where we do expect to see a sustained increase in gold buying is in the jewellery market. Jewellery gold demand is very price sensitive," the Societe Generale analysts said.
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