After a steep plunge in the fall 2012 – spring 2013, the price of gold has been moving sideways in the range of US$1,200-US$1,400 per ounce for about a year now. It is currently trading right in the middle of that range, at around $1,300 per ounce. Without making a call on the price, it is interesting to consider the movements of the gold price, which has often been a barometer for the global economic and political situation.
For instance, the growth of the gold price to almost $1,380 in mid-March 2014 was in particular attributed to the Russian invasion of Crimea. All movements in the price of gold since then have, at least partly, been linked to the change in level of tension in Ukraine. However, as we pointed out in a recent blog, the longer the Ukrainian situation lasts, the weaker the market’s reaction to it becomes. This fading reaction is a reflection of the relative indifference towards a situation that doesn’t appear to touch the West, but also some improved hopes for peace in Ukraine. At the same time, the market does not discount the prospect of escalation of the situation which supports the gold price.
Another major factor influencing the price of gold is the expectations for the direction of monetary expansion in the U.S. economy, and, correspondingly, the pace of asset purchase tapering by the US Federal Reserve. Every bit of more optimistic data for the U.S. economy drives the gold price lower (as expectations of quicker tapering increase) and vice versa. Physical demand for gold from China and India, which is also an important factor, remains strong. In particular, the gold’s recent climb to $1,300 per ounce was attributed to speculation that the Indian government will relax import restrictions on gold (Bloomberg).
Gold price forecasts for this year seem to lean towards the lower limits of the current price range. Among the lower forecasts is $1,050 in the next 12 months, according to Goldman Sachs, based on an improved outlook for the U.S. economy. A leading independent precious metals consultancy GFMS Ltd estimates average 2014 gold prices at $1,225. The investment bank UBS AG has recently increased its 2014 forecast to $1,300 on increased safe haven demand and buying from Asian consumers. The median forecast of the nine gold analysts tracked by Bloomberg for the late 2014 is $1,165. The two most accurate gold price forecasters in the group are more bearish with targets similar to that of Goldman Sachs.
By: Ukrainian Credit Union Limited
For instance, the growth of the gold price to almost $1,380 in mid-March 2014 was in particular attributed to the Russian invasion of Crimea. additional resources
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