LONDON (Sharps Pixley) – August and September saw unusual price volatility in gold, not just in the stock markets with MSCI world (developed market) dropping about 15% and emerging markets indices falling over 25%. Gold, the usual “hedge” during extreme financial turmoil rose or fell by over 3% on 8 occasions and declined 15% from peak to trough in the past 2 months alone – the sort of moves one might in former years have expected over the course of a full year. During this period, dollar assets have been favoured by investors, rising 6% and US 10-year Treasury yield falling by 88bp.
As such, it is a good time to review analysts’ early forecasts for 2012 gold price to see if they are changing their tunes or if they view any changes in gold fundamentals.
Broadly analysts are holding on to their bullish views and several have actually raised their 2012 gold price forecasts. The Bloomberg median analyst forecast for the gold price in 2012 rises by about 27% from $1,406 as of 30 June to $1781 as of 5 October. Natixis, the more conservative among the lot, raised its 2012 gold price forecast this Monday by 11.5% to $1,450, followed by Credit Suisse who raised its price forecast by 19% to $1,850 on Tuesday. Goldman reiterated its 12-month forecast at $1860, seeing no changes in fundamentals. BofA Merrill Lynch and Barclays’ analysts continued to maintain their 12-month forecast of a gold price of $2,000. Barclay viewed the gold price correction as a temporary move and a buying opportunity. Morgan Stanley this week hiked its 2012 forecast by an eye-catching 35% to $2,200.
Gold prices fell from $1,000 to $715 in 2008 during the period from February to October 2008 at the height of the Lehman’s crisis when investors sold their profitable assets such as gold, to cover losses in other risky assets as the then global crisis deepened, before rising rapidly afterwards. This time round the tune is similar. Also strong physical demand especially from Asia and steady ETFs assets continue to support gold prices and as such this seems to have cushioned the decline.