Commodities | Jun 28 2006
By Rudi Filapek-Vandyck
There’s a golden rule in finance (life ?) that when everybody is of the same opinion, the opposite is more likely to happen, and it’s amazing how time and time again the principle repeats itself.
This may be one of those times.
As recent as a few weeks ago everything seemed to be in place for an orderly devaluation of the US dollar and a steady recovery in the spot price of gold bullion.
But that was under a general assumption that US interest rates would go up one more time, tomorrow, and that would be it for this cycle.
The general view on US interest rates has started to change though.
Investors are now ascribing more than 80% chance to another rate rise in August and a growing number of economists believe the Federal Reserve won’t stop after that yet. Will the Fed Funds climb further to 6% by mid-2007?
Metals specialists at Barclays Capital, having been on the bullish side of the market for a long time, have already taken the inevitable step of cutting back their gold price forecast as Barclays economists recently raised their US interest rate forecast to 6%.
It doesn’t take a genius to figure out that, among other things, gold will be one of the victims if such a forecast would become the general market view (let alone if it actually was to be put in practice as well).
Barclays has lowered its average price forecast for gold this year by US$60 to US$600/oz. There is still upside to gold which is currently trading at circa US$580/oz, and the specialists hasten to add, yeah, it’s just a lot less than previously thought.
Of course, ultimately, it’s not Barclays economists or metals specialists who will decide upon gold’s fortunes, but it may be clear that if Thursday’s FOMC announcement comes out in line with the current shift in market expectations, investors in gold may be in for a rough ride.
Barclays believes we could see a liquidation of interest in gold.
The countdown has begun.