© Eugen Weinberg
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I do not think that it should be a concern. Although, it is a technical definition of the bear market, I do not see gold in the bear market as yet. Moreover, I disagree with a majority of market commentators, who called the price increase during the last years as a bubble that is about to burst. What we are seeing now is a period of consolidation, and definitely the recent price slump was steep and unexpected; however, I do not think it is denting on the prospects of gold in a longer term. Nevertheless, I would not rule out that it might be the case in the medium term.
In the eyes of many investors gold might have lost its safe haven status, but this effect will not be lasting. For instance, back in 2008, when couple of weeks after the collapse of Lehman Brothers gold prices also plunged by around 20%, but smoothly recovered since then. I expect the similar situation to occur, with gold prices rising in the near future.
Considering that gold prices have risen by around 600% in thirteen years and during the last two years the gold metal provided a return of more than 100%, don't you think that a pullback was to be expected?
In my opinion, it would not be a change but rather a correction of the trend. Definitely, increase of the gold price is not the one-way street; however, I do not consider the price appreciation to be over. I also believe that looking at a time range of only 10-12 years is quite misleading, because the gold price has been falling for many years and even decades, thus I expect this move to be temporary and recovery of gold was to expected over the course of last year.
The fact that the price is still appreciating does not depend so much on speculative activity, which subdued over the course of the past months and weeks, as the investors have become rather negative on gold, but it was mostly due to fundamental reasons. We saw stronger demand from the emerging economies, investors and central banks, which were for the first time in decades on a buying side of the gold market. On the other hand, probably continuing support by the central banks' actions that hold the interest rates, especially the real interest rates, in the negative territory.
What are your forecasts for gold for the end of this year, in 12 months?
What we expect this year is the recovery by more than 10% towards $1650 by the year end. In fact, the recent actions might have damped the status of gold as a safe haven, but we do not expect it to be lasting. We forecast the prices to recover next year towards $1800, but it would also depend on the actions of the central banks.