© Brenda Kelly
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I think there is a support around the 1180 lows that we have already touched at the end of last year. Thus, when we look at the price action over the last week or so, gold has staged something of a comeback and broken the 50-day moving average. However, it does seem that 1250-1265 level is probably the key resistance for this particular point in time. I think the overall trend for gold is to the downside. While we have seen a pickup in prices on the back of a more bullish bullion viewpoint in the Commitments of Traders report last Friday, I feel that unless we have got an absolute break through $1433 an ounce, we are going to see a preserved downside for gold.
What is going to be interesting to watch is the U.S. unemployment report. Obviously we did see a slightly weaker Dollar on the back of the data and that puts into question whether or not the Fed will rule out tapering and whether the uncertainty that comes from that will feed into the precious metals market. Thus, for the time being we are seeing support in around 50-day moving average around the 1240-mark. There is propensity at this particular point in time to make a retest of the 1300 level. But other than that I would expect that gold to be exceptionally resistant to any more upside momentum and it may turn out to be something of a corrective trade. I think we will be looking at a range of trade between 1200 and 1300 this year unless some major uncertainty prevails. That could come out of Europe from a political standpoint or the U.S., when it comes to whether or not tapering will go ahead. But for now I would be inclined to sell the rallies in gold over the longer term.
It is widely believed that gold ended its 12-year bull run in 2013. Does this mean that a long term bear trend is about to emerge?
I do not believe that gold will lose much of its allure. It will still have investors attracted to it despite the fact that it offers no yield. I think that 29% drop we saw last year was extreme and it comes on the back of the fact that there was the 400% increase in gold prices over the course of a decade. Thus, I think as economic growth accelerates so will inflation to some extent. I would still expect gold to have a certain place in an investment portfolio based on the fact that it is generally used as a hedge against inflation. Hence, from that point of view even if we do see the Dollar strengthening, we could see an increase in gold demand on the back of global economic strength and in the U.S. as the actual cautious trade tapers out.
Is declining gold prices a big concern for the countries that have the largest gold holdings?
If we look at the assets of central banks globally, which were net buyers of gold last year rather than sellers, I think that is an important aspect to be aware of. Obviously as the price of an asset decreases, that is going to affect banks' balance sheet. However, having said that, I believe that the selloff we have seen this year gone by is probably a little bit overdone. I do see that in some respect we should remain above the 1180 level this year. I think that the demand is definitely in a round-up at a particular point in time, but I do see the top end of it is around 1300 in this particular area. As global growth starts to return, we might see gold resuming its uptrend.
What factors will influence gold this year?
Obviously, we are aware of the fact that 6.5% unemployment rate in the U.S. is not necessarily a trigger point for tightening of monetary policy, but it may actually bring around consideration. Thus, with this particular pace of improvement in the employment story of the U.S. we could see interest rate hike probably in the early part of next year. Clearly, with gold having literally no yield, it may be very well feed into the bond market and make that far more attractive as an actual investment asset. Thus, from that perspective, it may be negative or neutralizing for gold. I think the markets are not expecting additional tapering to happen on a linear basis. I assume we will see the tapering of $10 billion taking place this month. Some of the Fed members were actually calling for a little bit more, but they may change their mind not based on one non-farm payrolls data release, but based on the quality of jobs that we are actually seeing, which are impacting jobs number and the unemployment rate somewhat positively. Thus, I do feel in some respect that it may be a little bit too soon to believe that the U.S. recovery story is underway. Although U.S. stocks are high, but some of the key metrics Dow Jones and S&P 500 seem to be overvalued and based on high liquidity rather than decent fundamentals. Thus, from that perspective as well if we do see a pullback in equities, we may see gold benefiting as the actual Dollar flow goes into safe haven.
What is your forecast for gold for the end of January and for the end of the year?
I think the markets have already priced in tapering, and I would say that gold is going to be stuck in around 1263 mark by the end of January, and towards the year-end I see gold at 1250.