Gold endured a rocky start to the year, beginning 2013 with a US-budget inspired rally only to have its gains snatched away as the Federal Reserve turned hawkish.
Within 48 hours, the price of gold sank from its October high of around $1,000 back to its August low, and taking fright at the uncertainty, exchange traded fund investors pulled 327,000 ounces after entering the year holding record amounts. It now trades at $1,663, down 2.8% month-on-month and 0.7% year to date.
Analysts’ forecasts on gold are just as choppy as the metal’s start to the year. While HSBC has cut its forecasts, Credit Suisse is keeping its eye out for bullion’s next big price kick.
Sharps Pixley’s Ross Norman, ranked the decade’s most accurate gold forecaster in a study by the London Bullion Association, is far more cautious and expects gold investors’ mettle to be tested as the days of double-digit gains look a distant memory.
‘We see the gold bull run remaining very much intact, but the conviction and patience of gold investors may be tested in 2013,’ Norman said.
He expects gold to range between $1,550 and $1,800 and average at about $1,736 for the year, with the fear of trade and dollar firmness clipping rallies.
‘For a market used to a 17% year-on-year compounded gain, a single digit percentage increase may feel like a bear market,’ Norman added. ‘In essence, we see 2013 looking surprisingly like 2012, that is modest price gains, declining volatility and extended periods of range trading.’
Well-followed forecaster and perma bear Marc Faber also expects gold’s price to see-saw. He continues to hold the precious metal as insurance against central banks printing money, but thinks it could correct by 10% before rising again.
While a dip would allow investors the opportunity to buy cheap, Faber agrees a strong dollar could be a headwind for gold. Credit Suisse said more stable global finances could allow for a modest gain, however, though gold may be near its peal if stability continues.
The bank told clients: ‘If our core macroeconomic scenario proves correct then that is likely to mark the beginning of the end of the bull market.'
It sees gold hitting a higher average over the year, of $1,790, and expects any fall in gold's price to be less pronounced.
Better off in silver?
Gains of 500% have been tipped for silver over the years ahead, with some forecasters believing will give gold a run for its money.
But Sharps' Norman said gold and silver are more likely to follow a similar path this year, given its strong run over the past 10 years, increased production and fears about the macro picture subsiding.
'We forecast a weak start to the year on US dollar firmness before good demand from industrial applicants as global IP picks up. With its recent history of price spikes, there is a danger sharp rises will be seized upon by producers as an opportunity to sell forward, effectively capping the rallies,' Norman explained.
'With primary mine production continuing to rise to new record highs, the onus is increasingly on silver bulls to prove the case,' he added.