Commodities | Oct 22 2007
By Chris Shaw
It has been a good few weeks for gold prices as the metal has risen to more than US$760 per ounce, helped by weakness in the US dollar and geopolitical concerns over the tensions between Turkey and Iraq.
But as Credit Suisse points out the metal has probably done a little less than many in the gold market might have expected given the supportive nature of recent events and it suggests there are two reasons why the metal has not been able to push through US$770 per ounce despite a few attempts at cracking that level.
Firstly, it notes speculative long positions in the gold market are already quite high as many traders turned to gold during the recent credit crisis, meaning they are somewhat less interested in adding to positions at current prices.
Secondly, the strength in oil prices in recent weeks has not translated into higher inflation expectations around the world, as inflation forecasts for the US economy in particular have moved sideways of late. This means there is less incentive to buy gold to gain from its traditional role as a hedge against inflation.
As a result the broker has turned more cautious on the outlook for gold prices short-term as it sees scope for some profit-taking, particularly as along with the lack of speculative buying there are signs of reduced physical demand at current levels.
This short-term change should not impact on the positive longer-term trend, as the broker still expects gold prices to move higher in 2008 on the back of flat gold production levels, continued strong investor interest and a greater reluctance on the part of central banks to reduce their gold stockpiles.
What it does mean though is the other precious metals are better placed to enjoy stronger short-term performance, so reversing the trend of the past several months where gold has outperformed its precious metal stablemates.
The broker’s picks as the most likely to benefit in coming months are platinum and silver, the former as it expects the supply deficit in the market to widen, reflecting both the production impact of a series of strikes at a number of mines this year and continued strong physical demand from the auto industry, which uses platinum in catalytic converters.
The broker also expects silver to reverse its trend of underperformance given the ongoing decline in the physical market’s supply surplus, while it sees potential buying support coming from traders given speculative long positions in the silver market are currently very low.
In terms of price forecasts the broker expects gold to move between US$670-$740 per ounce over the next three months, rising to a range of US$730-770 per ounce on a 12-month view.
From a close of US$13.73 on October 18th the broker is forecasting a range for silver prices over both the next three months and next 12 months of US$13.50-$14.50 per ounce, while for platinum it is forecasting ranges of US$1,300-$1,500 per ounce and US$1,400-$1,600 per ounce respectively, which compares to a close last Thursday of US$1,448 per ounce.