Did gold bottomed out? It looks like it did back in the middle of April, when it lost nearly $200 an ounce in two days. Since then, mainly on the back of stronger physical buying from around the world, the yellow metal remains range bound, pushing the higher level of the range.
Gold prices are no longer dictated by the U.S. markets and politicians as it was in the past. In recent years, market players monitor closely physical gold buying in China and India; they follow news about economic disasters from Japan and Europe, along with the never ending geopolitical problems in the Middle East and North Africa. When ETFs withdraw from paper trading in the United States, Chinese housewives and Indian traders flock to the jewelry stores in Shanghai and Dubai to get an advantage on the lower prices, while central banks of Russia, Kazakhstan and Azerbaijan increase their gold reserves. Are they less knowledgable than investors and traders in the North America? Perhaps they do not read big money managers recommendations…
Precious metals markets have become global. Nowadays economic powers are plentier, with some weighing more while others less on precious metals prices. If the U.S. Federal Reserve halts its bond buying program earlier than the previosly announced 2015 time frame, actions from the rest of the global markets would most probably cushion an eventual significant gold price drop. The majority of central banks around the world keep printing money and it looks like it would continue to do so in the coming years. The global economic outlook is still tinted as negative news continue to flow from different continents. Only during the past week, sharp decline in Japanese stocks was followed by European jobs report stating a very high numbers of unemployment. The exceptions are very few, with Dubai the most notable example. But Dubai is a city with a little over of 2 million people population, located in a country estimated 6th richest worldwide strategically positioned in the middle of an oil producing region.
A number of market observers, analysts and participants expect higher gold prices in the coming months. Among them is Gerald Celente, who forecasted some of the worst economic crises of the past years well in advance. He is not selling his gold! Here is his latest commentary:
Elsewhere, Nouriel Roubini projected that the price of gold would likely plummet to about $1,000 before the end of 2015. He attributed the likely further plunge of gold prices to:
- Gold spiking during extreme crises, but the crises days are now over.
- A risk of high inflation is the period that gold does well.
- Because of the recovering economy, investors are not interested in holdings that pay no dividends.
- The rise in real interest rate which kills gold.
- Governments with piles of debt, such as Cyprus, are dumping their gold.
- American right-wing fanatics juiced gold, but those days are over.
Mr Roubini, a professor at the Stern School of Business in New York University and senior economist for International Affairs in the White House’s Council of Economic Advisers, pointed out that gold – which was priced at $800 per ounce in early 2009 and hit beyond $1,900 in the fall of 2011 – had all the features of a bubble.
The downgrades by a number of major investment banks are no longer interesting, because news typically have a short life span. The news about revised gold forecast for 2013 and 2014 have been around long enough to become boring. Influencing traders by revising gold prices forecasts lost momentum.
Meanwhile, global demand for gold jewelry rose in the first quarter of the year, according the World Gold Council.
Market participants who see higher gold prices in the short term seem to have the right expectations.
