© Anne-Laure Tremblay
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We have a positive view on gold, at least through the first half of 2013. This optimistic outlook is supported by what we perceive to be solid fundamentals, including a higher money supply growth from central banks like the BOJ or the Federal Reserve. In our opinion, the U.S. Dollar is going to weaken against other currencies on the Fed's actions. In addition to that, we also have a situation, where tail risks surrounding the Eurozone seem to have decreased, meaning that episodes of extreme risk aversion at the moment are perceived to be less likely. All these factors are supportive for gold in our view, and therefore we see a higher gold price in the next few months. Beyond that we see gold price peaking in 2013, and the reasons I have just mentioned are behind this outlook. We expect the market to stop anticipating the end of monetary accommodation by the Federal Reserve at some point. This in turn will decrease investors' interest in gold, which is a driving factor for the precious metal.
In terms of whether gold will perform as a risky asset or as a safe haven, it is difficult to say. Gold has not gone up when risk-off sentiment was increasing, or gone down when risk aversion was low. That is not exactly how it works. Safe haven demand can increase retail demand for physical gold. However, investors' interest, and by that I mean larger actors that incline to have more pronounced impact on the market, tends to be more driven, not necessarily by safe haven, but rather by monetary policy of the main central banks. Thus, inflation expectations, anticipation of further monetary supply or the view on U.S. Dollar are going to have more of an impact on the gold price relative to the amount of risk aversion in the market.
What key issues might influence gold this year?
The most important driver is central banks' monetary policy, from which derives a view on currencies and inflation expectations or potential inflationary pressures in the future. There are also other factors, obviously. Central banks, actually buying physical gold, have been a supportive factor in the recent years, and we expect this to continue in 2013. We also have a physical demand coming from the two giants in the market, which are India and China. India tends to be most sensitive to prices. There have been steps by the government to stem gold consumption in the country to reduce their current account deficit. We expect this to continue, but in the end physical demand will probably be boosted by any pip in prices. Regarding China, it is a bit more complicated picture. It is less price sensitive than India and there is a wide range of factors driving gold demand there: higher increase in income and inflationary expectations. Additionally, the cultural factors have been a third reason why the Chinese have been buying gold. In terms of China's demand, we do not think that the growth rate we have seen in recent years will continue. In 2012 we saw this growth rate accelerate; however, we do believe that it will continue to be a major supportive factor for the gold market.
What is your forecast for gold price for the end of January and for the end of the quarter?
Our average price forecast for gold is $1815 an ounce. At the moment this forecast looks a bit on a high side, obviously. Currently market sentiment is relatively subdued. It seems that positioning is relatively low on gold. That means if it does not pick up than we are unlikely to see gold reach $1700. However, because we believe that the fundamentals are there, any pick up in the market sentiment should bring more long positioning in the gold market. And because it is low at the moment, there is a potential for this positioning to increase even through net non-commercial futures position, so through the futures market or through ETF or OTC markets. Hence, in that sense the next big resistance level would be $1700. We believe that once this market sentiment starts to shift more positively, and it has done so in the past few days, then we should reach that $1700 level and then go beyond that. By the end of the quarter again, we have a positive view, so we think that it is going to go upwards from here and it will test at least $1800 level by the end of the quarter.