Societe Generale cut its gold price forecast again again, after becoming bearish on gold back April. In a report from 12 June, the bank’s mining analysts lowered their gold price assumption to $1,400 an ounce from $1,500.
We are downgrading our financial forecasts to reflect the latest developments in the gold market. In our valuation models we are therefore lowering our life-of-mine gold price assumption to $1,400 (was $1,500) and silver to $23 (was $27), bringing it broadly into line with the current spot price.
That $1,400 is still higher than the French investment bank’s commodity strategists forecast, however. The strategists expect gold to approach $1,200 by the fourth quarter of 2013, $1,150 in 2014 and $800 by 2018.
Analysts also analyzed the effect miners. Using $1,150 in the equity valuations, they expect to see a further 55% average downside to stock prices, a result that would generate Sell ratings across our entire coverage. I
At $1,400, they cut their ratings on Randgold Resources (GOLD) and AngloGold Ashanti (AU).
Societe Generale’s commodity strategists explained their decision to cut gold price forecast again with the fact that gold price had already reached their year-end target of $1,375/oz in April. They believe the dramatic sell-off in April will accelerate the likely continued exit of investors from ETF gold holdings. ETF gold selling has averaged 110 tonnes per month since the April sell-off. They expect ETF selling to continue and this is likely to exceed higher demand for jewellery/bars and coins. Therefore, they have revised lower the bank’s Q4 13 gold forecast to $1,200/oz. The gold price is “in bubble territory” they wrote.
Investors have pushed the gold price sharply higher over the last 10 years with the last five years having been driven by fears that aggressive central bank QE would lead to very high inflation. But inflation has so far stayed low. Now analysts are beginning to see the economic conditions that would justify an end to the Fed’s QE, and they expect the US dollar to strengthen medium term.
