A week in gold: Good run ends though plenty of optimism still
London (Mar 23) Gold fell over the week as markets took a more sanguine view on Ukraine while Janet Yellen’s hint that US interest rates could rise earlier than expected also hurt.
While the political situation in Ukraine remains tense, comments from president Vladimir Putin that Russia had no wish to expand further than annexing Crimea seemed to placate traders.
Spot gold was trading at US$1,340 on Friday afternoon, around US$45 below this time a week ago with views mixed over where it could go from here.
Goldman Sachs issued its almost weekly prediction that the price is heading for sub US$1,000 at some point in 2014 due to Fed tapering, rising US real interest rates and confirmation of an improvement in the US economy.
New Federal Reserve chair Janet Yellen’s comment that interest rates could start to rise “around six months” after the end of tapering suggested the central bank may also think the US economy is growing well enough under its own steam.
Yellen was speaking after a Fed meeting that saw its monthly bond-buying programme reduced by another US$10bn to US$55bn. It was the third cut in three months and economists expect this pattern to be maintained until the bond programme ends.
Gold has been boosted by the money printing adopted by numerous central banks since the 2009 crash but especially the US and its withdrawal has been cited as one reason for gold to ease lower.
Not all commentators think this will happen. This week Commmerzbank raised it price forecast to US$1,400 and highlighted the reversal in exchange traded fund (ETF) outflows as a decisive development in the rise in the gold price this year so far.
After 24 tons of gold was withdrawn from the ETFs in January, these outflows have since almost entirely reversed, it said while the world’s largest gold ETF, SPDR Gold, registered net inflows of 15 tons.
According to Commerzbank: “The end of ETF sales brings huge relief for the price of gold. A look at the World Gold Council’s statistics demonstrates this: ETF outflows of a total 881 tons were the reason why aggregate demand for gold plunged by 15% to 3,756.1 tons last year.
“Without ETF outflows, gold demand would have reached record levels in 2013, as the demand for gold jewellery achieved a 5-year peak at 2,209.5 tons and the demand for coins and bars reached an all-time high at 1,654 tons.“
The broker forecasts that the end of ETF selling combined with robust demand from Asia point to the upswing in the gold price continuing during the course of the year, especially if gold import restrictions are loosened in India. Inflows to gold ETFs are not even necessary for a higher gold price, it adds.
“Assuming that demand for gold jewellery, coins and bars in 2014 is similarly strong to last year, total gold demand would reach a record level without ETF inflows. We therefore expect the gold price to advance to US$1,400 a troy ounce by the end of the 2014.”
Source: ProactiveInvestors-UK
