Gold price: 10 reasons why we have seen the lows
Gold $ 1,050 by year end? There are many reasons why Goldman Sachs could be proved wrong on its forecast. This is why we believe the bottom in gold is behind us!
Over and over Goldman Sachs has been reiterating its gold forecast for 2014. The investment bank is almost obsessed with the idea Gold could fall to $ 1,050 by year end. Goldreporter presents 10 reasons why this is not going to happen.
1. Tapering factored in
The end of QE3 (Tapering) is factored in by the markets. As well as the US economic recovery and an interest hike in 2015. It is the decisive factor on which negative gold price forecasts are based.
Indian gold demand has been supressed for more than a year throught higher import taxes and domestic gold market barriers. But still the country represents 25 percent of the global gold demand. What happens when the new government lifts gold import restrictions?
3. Futures market
The U.S. banks do not put more pressure on gold. According to CFTCs monthly bank participation report they are net-long in gold since June 2013. The gold price has not been falling significantly since. Based on our own research the gold price typically comes under pressure when U.S banks are way net-short.
4. U.S. Banks
The bullion banks keep on publishing negative price forecasts. But they do not follow their own advise (see 3.). Moreover, Morgan Stanley, BoA, JP Morgan and the likes just recently have increased their stakes in the worlds biggest gold ETF SPDR Gold Trust (link).
Gold sentiment is at an absolute low. Gold went from week hands (U.S. ETF investors ) to strong hands (Chinese consumers) within the past three years. Selling pressure is waning.
6. Price suppression
Now it is official. The London gold price has been manipulated since 2004. Banks are monitored. And furthermore, there is not much more to earn on the downside for gold price manipulators after last years 28 percent correction.
Currently gold is well suported above $ 1,280. The chart created a triple bottom in the area between $ 1,280 and $ 1.290. The 50 day average crossed 200 day average on the upside at the end of march. A bullish sign that is still valid.
8. Safe heaven demand
Equity markets are inflated. A correction is overdue. For the past months there is a negative correlation between gold and the latter one. So what is going to happen when the stock market crashes?
9. Mine production
Based on data provided by Thomson Reuters GFMS at the current gold price level only 40 percent of all gold is mined cost effectively (all-in costs). If the price of gold comes more under pressure, there will be less production and less supply. So prices will naturally stabilize.
10. Permament crises
Iran, Syria, Crimea … The next geopolitical crisis is just around the corner. So gold is here to stay.
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