Commodities | Sep 21 2006
By Rudi Filapek-Vandyck
Swiss Investment bankers Julius Baer have their own inhouse model to value and predict the direction of the spot gold price. The model is centred around the relative price for gold versus the US dollar as well as global money (im)balances. In July, when the bullion hit US$625/oz, Julius Baer’s model thought it could well be up to 20% overvalued.
Given the current high volatility in the gold market, a (very) weak energy market and an almost unusually stable US dollar, Julius Baer’s update on matters is for a potential drop in the gold price to USD540-560/oz over the coming weeks.
The investment bankers do add the longer term uptrend remains intact and they join other experts in their call for the gold price to reach over USD700/oz in 2007/08. Julius Baer believes this upward move will be mainly driven by investor demand.
The investment bank notes that Gold Fields Mineral Service (GFMS), “the world’s foremost precious metals consultancy”, stated in its latest review that the "return of an investor-led rally is forecast to lift gold to over USD700/oz before year-end, though potential shorter-term weakness still exists." Julius Baer believes this is a rather bullish statement given we are entering the fourth quarter with gold prices at around USD580/oz.
The Swiss suspect the US$700 figure should be read “more as a directional forecast for longer term gold prices” instead of an actual forecast for the coming 3.5 months.