Societe Generale had the second April hardly expected that their forecasts for the end of 2013 should be fulfilled after only 13 calendar days.
The 2nd of April, the finance house Societe Generale published an analysis titled "The end of the gold era". In this the financial services company announced the expectation that the price of gold was facing a collapse, with a marked decline as a result. Their assessment at this time was that gold would fall from the current 1575 USD per. ounce to 1375 USD per. ounce at the end of 2013. Compared to the price at the end of 2012 it had the 2nd of April already droped almost 100 USD per. ounce from 1673 USD per. ounce to 1575 USD per. ounce, but this was a steady and slowly drop over three months.
Societe Generale had the second April hardly expected that their forecasts for the end of 2013 should be fulfilled after only 13 calendar days. But it was exactly what happened. Friday the 12. of April the price dropped by about 80 USD per. ounce, and Monday the 15. of April, the declined reinforced with a further drop of more than 120 USD to 1363 USD per. ounce.
Since then we’ve seen a reaction to the sharp decline, so the price Thursday night in the past week had recovered to 1458 USD per. ounce. But it is precisely the phenomenon that Societe Generale, in contrast to most other finance houses hit the spot with their analysis, which means that investors now can look at interest at what Societe Generale expects after the collapse in gold price.
After the sharp fall in prices and a preliminary backlash Societe Generale has followed up on the comprehensive analysis with a new assessment. Head of strategy team Alain Bokobza concludes that the financial house in general maintains its forecast from 2. of April. In the short term, he believes that there may be a backlash, and this is probably what we are currently witnessing.
After the collapse in gold price, he believes that many portfolio managers are doing a reassessment of gold as an asset in a portfolio. So far it has helped to reduce the volatility of a portfolio. But now there are undoubtedly many portfolio managers who want to reduce the proportion of gold.
Overall, he points to four arguments that the forecast by the end of the year is maintained. Firstly, he expects that the Fed will slow down in the very expansionary monetary policy in the autumn. Secondly, it is estimated that the USD in the coming quarters, and possibly in the next two to three years will be in a bullish movement.
Thirdly Societe Generale assess that disaster risk in Europe is diminished. It is a development that has been going on since the ECB president Draghi in the summer of 2012 signaled that it was ready to do everything that was needed. This has led to a stubborn battle to avoid that some countries end in collapse. Admittedly, the handling of Cyprus underway mildly put has not been very lucky, but since there's also been quiet about this. Both Spain and Italy have for months been in an development with ever decreasing yield spread to Germany, as an expression of investors' nervousness about the two countries is declining. This means according to Societe Generale, the risk of a EUR-break-up is now diminished.
Fourth, the finance house is pointing to that the period we have been through with commodity price increases is declining in parallel with a structural slowdown in China. In addition, the U.S. energy revolution means downward pressure on energy prices globally, and it is instrumental in keeping inflation expectations in balance.
Overall it is all arguments that the gold price will have a downward pressure. Technically the financial house assess that gold could fall to 1265 USD per. ounce. What can point the other way, the financial house state - maybe a little teasing - is when traditional gold positive experts switch to be negative. "Only when that happens, the price of gold will stop the fall". On top of these arguments finance house points that ETF funds collectively are starting to sell off their holdings, and it is also an argument for lower a gold price.
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