Gold has been depreciating for months. The market hasn’t seen a major rally since 2011 when it hit the all0time high at $1895/oz. The price of gold is currently fluctuating around $1300/oz. Experts are divided over the near-term prospects of gold. While some of them say gold will continue the downtrend, others are still bullish on the commodity. What are the near-term prospects of the precious metal? Let’s try to answer this question together with Masterforex-V Academy.
Gold Under Pressure
When considering the current continued weakness of gold, we have to admit that very few analysts actually managed to anticipate it. Most experts were bullish on gold in 2011 even after it hit the all-time record. They used to say that the commodity would easily overcome the $2000 level, which is certainly not the case now. Some investors still won’t sell their gold assets despite a major decline. They believe that the weakness is temporary and it is time to buy more gold.
Meanwhile, since the USA abandoned the Gold Standard (the US Dollar used to be pegged to gold), the precious metal hasn’t been stable. In the 1990s, Western economies showed sustained growth, thereby pushing gold prices down to $240/oz. It wasn’t until the 2000s that gold gradually appreciated up to $1400/oz thanks to a major decline in the global production of gold and intensive gold hoarding by central banks worldwide. The 2008 global crisis crushed the global economy, thereby accelerating the gold rally. That made almost everyone to believe that gold will inevitably keep appreciating. So why did we get a decline instead of a further rally?
Well, Warren Buffett says gold cannot be treated like a 100% commodity. Its industrial use is rather scanty so it cannot be called 100% usable. Therefore, it is like securities or other non-commodity assets, which means gold is subject to speculation and bubbles. Most probably, what happened over the last couple of years was a bubble that inflated and then burst.
The headlines are negative for gold: Cyprus is about to sell out its gold reserve, the Fed may well curtail its accommodative policy and the Chinese economy is still slowing down. On top of that, the speculative factor keeps exerting extra pressure on the market since manipulators can trigger sellouts and buying fevers for their own good.
Experts on Gold Prospects
Today, even optimists expect gold to continue its downtrend within 12 to 18 months down to $1000-$1200/oz. Some of them say, gold is doomed since major gold-mining companies (Newcrest Mining, Barrick Gold) have seen their stocks collapsing by 50%. Still, we should not forget that 2 years ago analysts were as certain about a further rally as they are now when saying that gold will see further weakness.
According to Masterforex-V Academy, experts name several factors that are capable of pushing gold prices to new highs:
· Low prices make gold mining unprofitable, which may result in a sharp production decline. If this is the case, we will face a huge deficit, which will eventually result in higher gold prices.
· Central banks keep purchasing gold, which also supports gold prices.
· Gold is closely and positively correlated with crude oil. Therefore, any major rally in the market of crude oil may also help gold to regain its ground.
· India and China, the world’s 2 biggest consumers of gold, keep expanding their demand for gold. The expansion comes from both jewelers and consumers.
· Global currencies remain weak. At the same time, continued quantitative easing in major economies worldwide is expected to result in higher inflation, which is a bullish factor for gold since gold has always been considered the best safe-haven asset to save money from inflation.
Traders and Investors on Gold Prospects
There are controversial opinions on the issue. Jim Sinclair, a famous investor, assumes gold may well hit $2400/oz in summer 2014. At the same time, Warren Buffett and Nouriel Roubini underline the irrational nature of gold investors’ behavior, which means gold prices are hard to predict.
The chart below, courtesy of Masterforex-V Academy, reflects the current state of affairs in the market of gold:
