A review of the gold price written by Robin Bew, chief economist at HSBC Bank, proposes that the gold price is in danger of entering bubble territory and predicts a sharp correction by year-end to $1,000 per troy ounce by 2013. [Let’s examine Bew’s views more closely.] Words: 725
So says Stuart Burns (www.metalminer.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Burns goes on to say, in part:
The bank states there is nothing special about the nature of gold that makes it an ideal safe-haven asset because, were it not for its widely perceived role as just that, gold would behave like most commodities and rise in value during good economic times when demand for its industrial uses increases. Of course, gold has limited industrial uses and, if that were the only source of demand, the price would behave exactly as he suggests. The problem, [however,] is the quasi-financial role that gold has — not quite a currency, but treated as if it were – which imparts it with a special status. Like all currencies, though, it can rise or fall depending on circumstances. Upon accepting that the world has somewhat arbitrarily assigned gold this role, we must review a number of factors that support gold’s price prior to predicting how these may develop in the year ahead, [namely,].
- Gold’s safe-haven status: As Bew points out; since Lehman Brothers collapsed on Sept. 15, 2008, the price of gold has more than doubled. Demand from investors rose by 73% from 2007 to 2009 and another 24% in 2010, along with demand for other safe-haven assets like US treasuries and the Swiss franc. The yield on all such government debt – US, German, Japanese — has been historically low for much of the last three years with the exception of early 2011, when the community went risk-on and moved out of safe havens and into commodities and other riskier assets. Recently, though, sovereign debt has been very much back in the news and gold has benefited from its safe haven status as the euro has seemed on the point of collapse and the U.S. government seems unable to reach agreement on budget cuts.
- The fear of inflation: Indeed, in 2009-10 many were attracted to gold as a hedge against the potential for rising inflation as the global economies bounced back in an extremely low-interest and loose monetary environment. HSBC… [however,] …does not see any significant risk of a rise in inflation in the early stages of what will be a weak and prolonged recovery phase. They are expecting a gradual US recovery starting later this year and observe that Japan is already returning to some sense of normality after the natural disasters early this year.
As interest rates rise, the attractions of financing investments in gold will be reduced compared to other asset classes. As a result, the bank expects the price of gold to average $1,390/troy ounce in the fourth quarter of 2011 and fall to $1,000/troy ounce by mid-2013… [providing] the recovery occurs as expected and inflation remains subdued…
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As such, some may question if gold at $1600/oz really represents such great value, or if they would be better off taking profits while they can.
- The Future Price of Gold and the 2% Factor http://www.munknee.com/2011/06/the-future-price-of-gold-and-the-2-factor/
- Update: These 90 Analysts Believe Gold Will Go to $5,000/ozt. – or More! http://www.munknee.com/2011/06/update-these-90-analysts-believe-gold-will-go-to-5000ozt-or-more/
- All This Gold Bullion Bull Market Hype is Just That – Bull….! http://www.munknee.com/2011/07/all-this-gold-bullion-bull-market-hype-is-just-that-bull/
- Gold is Not an Investment – Gold is Money – and Here’s Why http://www.munknee.com/2011/06/gold-is-not-an-investment-gold-is-money-and-heres-why/
- Richard Russell: Get Prepared – A Gold Tsunami is Coming http://www.munknee.com/2011/05/richard-russell-get-prepared-a-gold-tsunami-is-coming/
- Gold to Repeat? http://www.munknee.com/2011/07/gold-to-repeat/
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.