Commerzbank rejects the notion that the gold bubble has burst, maintaining a price forecast of $2,000 per ounce in 2014.
The metal is unlikely to remain in a sustained downtrend, the bank said in a note on Thursday, with physical and retail investors flocking to pick up gold while prices are comparatively low.
“We have compared the current gold price trend with previous bubbles and argue against the view of bubble formation,” it added.
The fundamental environment of ultra-loose monetary policy, low real interest rates and the threat of a global currency depreciation race continues to support a rising gold price, it said.
Gold’s historically unprecedented fall started on April 12 – spot metal fell more than $200 in two days and dropped $133 on April 15 alone. That was the metal’s largest fall in dollar terms on record, sending it 27 percent below its 2011 price peak.
But Commerzbank does not see this as bubble behaviour because a “bubble is mainly characterised by the last price rise showing exponential growth, directly followed by a sharp price slump,” it said.
Comparing the gold market with known bubbles in the financial market – the New Economy bubble, which burst in March 2000, and the oil price bubble which burst in July 2008 – growth in gold prices were more subdued, it said.
“In the seven months preceding the all-time high, the Nasdaq Composite nearly doubled,” it said. “More or less the same can be said for the oil price in the first half of 2008. Gold, on the other hand, edged up by ‘just’ 30 percent between January and early September 2011, which was practically on a par with the average annual price trend up until 2010.”
For both these other markets, the downturn was sharp and sudden and followed hot on the heels of the highs, Commerzbank said, but the gold market behaved in a markedly different fashion.
“Between the all-time high of September 2011 and the recent plunge, 19 months passed, and in the three months following the record high, gold fell by a ‘mere’ 20 percent,” it said.
The bursting of a bubble after such a long period would be “a quite exceptional event”, it added.
“The current situation is more reminiscent of the temporary sharp downtrend in October 2008 than of other bubbles. Back then, the price of gold also dropped by around $200 per troy ounce within two days, but recouped the losses over the coming three months,” Commerzbank added.
The fundamental environment remains positive for gold even after the price slump, it added, seeing a recovery in investment demand across the rest of 2012.
“The central banks in the emerging markets have been buying gold for three years,” it said. “With the proportion of gold in currency reserves of the emerging countries still at very low levels, central banks are likely to use the lower price level for further buying in the coming months. A further factor supporting prices is the ultra-loose monetary policy of central banks in the industrial nations.”
For now, though, gold’s status as a safe-haven asset has been “shattered” and its technical picture is “tarnished”, heightening investor caution. But the overreaction to the metal’s dramatic slump is already being reversed, it said, predicting gold to stabilise at $1,400 over the next three months and to return to $1,650 in the fourth quarter.
Spot gold was last at $1,455.30/1,456.20, up $24.90 or more than 1.7 percent on Wednesday’s close, after breaking back above $1,450 for the first time in eight sessions earlier this afternoon.
from Live Gold Prices, News, Research, Charts and Resources from … by Eddie van der Walt