On Wednesday, Credit Suisse cut its outlook on gold prices for this year and the next one. The bank expects Asian physical demand for the metal to not be enough to compensate lack of investment interest in other regions.
The average gold price forecast was reduces by 9.2% to $1,580 a troy ounce for this year. The 2014 average gold price forecast was reduced by 12.8% to $1,500/oz. We expect more drastic slump in the summer months of 2013.
While the problems in Europe and, perhaps, concerns about the impact of the U.S. sequester, may keep the metal reasonably well supported during the current quarter, a further weakness through the second half of the year looks very much possible. By long-term historical standards gold remains overvalued, both in real terms and relative to other commodities and assets, according to Credit Suisse.
While the U.S. Federal Reserve looks likely to continue its gold-supportive loose monetary policy for a while, the positive impact of such measures are limited.
At present, the prospects of further banking/liquidity crises and tail risks seem rather weak. Therefore, for investors to buy more gold as a risk hedge doe not seem necessary any longer.
Demand for gold in Europe also remains lackluster, despite heightened concerns over the economic situation in the region. Elsewhere, the Chinese gold demand is not sufficiently strong to keep gold prices above $1,600/oz.
While gold exchange-traded fund selling may pause in the near-term, over the longer term there is a danger that the very visible reduction in ETF positions will become self-reinforcing: outflows affecting sentiment and price, and then leading to further liquidation,.
Credit Suisse also cut its 2013 outlook on silver by 11.5% to $28.50/oz and trimmed its 2014 forecast 13.1%. It revised lower its outlook on platinum, copper, aluminum, nickel, lead and zinc, while raising its forecast for palladium prices this year and next.
Silver is traditionally extremely volatile and in comparison to gold remains undervalued. It some times presents unexpected short term opportunities to traders to realize between 10% and 25% profits . Silver, at present, seem a more reliable long term investment than gold, according to our observations.
