Commodities | Nov 19 2009
By Rudi Filapek-Vandyck
When it comes to gold, there are at present three types of commentators, or so it seems. Type number one is characterised by an acknowledgement that the longer term uptrend for gold is probably upward and onward. But, asks type one, does that necessarily mean that the strong appreciation in the gold price over the weeks past is justified as well?
Type number two has no such doubts. Gold is on the rise and it will continue doing so.
Type number three remains convinced the two previous views will be proven wrong, probably towards the end of 2010.
Commodity analysts at Calyon, a subsidiary of French bank Credit Agricole, seem representatives of type number one. Calyon’s present FX forecasts foresee a peak in the USD weakness sometime in the months ahead, leading to the euro returning to 1.55 against the greenback, but after that a gradual comeback for the US dollar has been penciled in.
Probably no surprise then Calyon has also penciled in a gold price at around US$1100/oz for the present final quarter of 2009, as well as an average gold price of US$1100/oz for the whole of calendar 2010. This may seem a bit odd, but if you think about it for a little longer, and take into account the analysts’ EUR/USD forecasts, it is likely a reflection of the view that gold will probably spike higher at some point during the first quarter of next year, but that then should be the peak for the year.
Type number three commentators should not declare victory too soon though, as Calyon’s present forecasts foresee an average gold price of US$1200/oz for 2011. This suggests we might be back to where we are now in a year from now (with upward momentum)
For what it’s worth, EUR/USD is expected to return to 1.35 by December 2011, suggesting at some point gold will decisively de-couple from the greenback and rise regardless. The Aussie is forecast to peak towards the middle of next year, at around parity against the USD, but should be back at US91c by the second half of 2011.
Over at Standard Chartered, commodity analysts remain type two, at least for now. Standard Chartered analysts have sought, and found, confirmation of ongoing support for gold in physical demand for the precious metal. Right now, report the analysts, physical demand is higher than it was in Q3 and this is likely to remain that way throughout the final quarter and into the New Year.
Standard Chartered believes the new support level, at US$1100/oz, will keep the price of gold elevated throughout this period and thus it is the analysts’ view the present rally has further to go still. But come February-March, when seasonal demand will drop, the overall picture might reverse swiftly. Offsetting this picture is the fact that Standard Chartered predicts further weakness for the US dollar in the opening quarter of 2010.
Should gold breach US$1,150/oz in coming days, US$1,200 could be on the cards, say Standard Chartered analysts. However, if gold fails to breach US$1,150, which is where technical resistance lies, and the precious metal would subsequently consolidate sideways in the next few weeks, Standard Chartered suggests the probability of gold reaching US$1,200 may become smaller, the closer we get to year-end.
Technical commodity analysts at Barclays Capital, on the other hand, are definitely type two experts. At present, they only see bullish signals and some more bullish signals, no matter where they look. Yesterday, the analysts predicted platinum was readying itself for a big break out to the upside. Today, the analysts point out that gold is looking bullish not just on USD price charts, but on virtually all charts against no matter what currency. (They’re very bullish on silver too).
This is seen as a very bullish signal. Barclays technical analysts continue pointing into the direction of US$1500/oz as the next target for gold.
Analysts at GaveKal, however, have remained rather sceptical while observing gold’s strong upsurge. In a recent market commentary, they summarised gold’s price momentum as follows: gold is going up, because it is going up.
No prices for guessing what they think will happen once momentum turns in the market.
BTIG Chief Market Strategist Mike O’Rourke is very sceptical towards gold’s refound glamour, stating most arguments used to justify why the price of gold is moving up are simply humbug and wrong. The worst argument, yet most popular one, says O’Rourke is the reasoning that on an inflation adjusted basis, gold should be priced at US$2000/oz when compared to its peak of 1980 (when gold spiked one day to US$850 but immediately fell back to much lower price levels).
States O’Rourke: Gold has never traded at the forecasted inflation adjusted price at any time since that argument first started being used. This in itself does not mean that it won’t trade there someday, but “one would still be hard pressed to pinpoint why it is more valid today than at any other point in the past 29 years, when it did not work”.