© Caroline Bain
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Gold has slumped 19% this year, heading for the first annual drop since 2000. Do you consider falling gold prices as a positive aspect, a signal of recovery showing that investors do not need gold anymore as a safe heaven? Or in your opinion, was gold simply overpriced and now we see price correction?
I believe that in one way we can consider falling gold prices to be a positive sign. During the last five years there has been a surge in gold holdings, followed by price increases, as investors were trying to protect themselves from key risks, including a possible breakup of the Eurozone, as well as concerns about US sovereign creditworthiness. From that perspective, the price drop is a positive aspect. It is obviously very closely related to the prospect of normalization of global monetary policy, because with rising yields and interest rates on other assets, gold loses its attractiveness. From an economic perspective, it suggests and the beginning of more sustainable growth. Therefore, overall I consider it as a positive sign for the global economy.
Do you expect gold to recover from the recent drop?
No, we think a sustained recovery from the recent price drop is unlikely. On the contrary, we expect smaller falls for the next and the year after. The end of liquidity injections by the US Federal Reserve, coupled with interest rates that will begin to rise over the next couple of years will mean gold losing its attractiveness as a financial asset, in particular as an investment asset. However, we do not see a particular drop-off in physical demand for gold, as lower prices will encourage jewellery purchases, which will offer some support to prices.
What economic and political events besides Fed tapering can affect gold price?
Typically, you would expect an increase of geopolitical tensions or a resumption of financial stresses in the euro zone to support the gold price. On the other hand, there are signs that investors are feeling more confident about global economic growth and more stable financial markets. For example, the recent U.S. debt ceiling vote and the possible U.S. default did not lead to a significant movement in the gold price. Hence, it would have to be a major event that seems very likely to happen to be supportive to the gold price.
What are your forecasts for the gold price for 2014?
We expect the gold price on average to be US$1,424/troy oz for this year and US$1,331/troy oz for the year of 2014.