Gold price may witness gentle bull run in 2015: GFMS
Washington (May 4) Despite gold’s inverse co-relation with the dollar, precious metals consultancy firm GFMS predicts a “mild bull run” in gold in 2015. This could happen even when the dollar gains strength after the US Federal Reserve hikes interest rates. Speculations on rising interest rates in the US have been putting pressure on gold price for some time now. GFMS finds that there will be a complex interplay between competing asset classes, like gold and dollar, while the investors will implement fresh strategies.
There appears to be something of a contrarian consensus developing in the gold market. Higher US rates, when they come, will trigger higher gold prices, whereas usually higher interest rates, in a low inflationary environment, would be bad for gold as a non-yielding asset class, GFMS said in the quarterly update on the metal.
“The next move in gold price is likely to be the result of a complex interplay between competing asset classes. In the short term the price remains under some pressure, but any approach towards $1,100 (per ounce) will be constrained by a growing demand side response. This is compounded by strong technical support around the $1,130 and $1,100 levels,” said Rhona O’Connell, head of the GFMS team.
“Further out, clarification of the timing of the first rate hike in the United States will remove a degree of uncertainty from the markets and is likely to trigger the start of a secular, but gentle, bull run in the gold price as investors implement fresh strategies, aided by improving gold market fundamentals”, Connell added.
In the price outlook commentary, GFMS asserts that the market has already anticipated the new interest rate policy and that this is therefore more than priced into the market. The GFMS annual average price forecast has not altered since the start of this year at $1,170/ounce, but the mean forecast from the poll of market participants is $1,206. GFMS’ 2016 price forecast finds gold to have an annual average of $1,250/oz.
However, some analysts beg to differ. They think interest rate hike signals a better economy. It can be positive for other asset classes like equities but not for gold. “Prices might not fall when the interest rate starts moving up, which is most likely to happen in September. By then interest rate hike would have already factored into gold prices and the metal would have seen $1,100 or $1,050 levels. However, a gentle bull-run in gold price is not likely,” said Tapan Trivedi, senior analyst, Karvy Comtrade. According to him, gold has not been able to sustain safe-haven buying triggered during the geo-political turmoil in different parts of the globe as it has been reacting to US economic data and interest rate speculations for some time now.
Source: MyDigitalFC
