January 2015, Week 4 Edition
Gold broke $1300 last Thursday – its highest level in nearly six
months, since August 15 – after the European Central Bank (ECB) made their
expected announcement of “quantitative easing” (QE) in their attempt to boost
their sagging economies and to fight deflation. Interest rates are now negative
in the euro-zone and Switzerland, and close to zero in the U.S. Price inflation
has also been negative in the U.S. during the last quarter of 2014, due mostly
to sharply declining oil prices, making the rise in gold all the more
impressive. Silver is rising faster, fulfilling its role as “gold on steroids,”
leveraging gold’s move up, reaching $18.48 at one point, up about 15% so far in
2014 (vs. +8% gains so far for gold in 2015).
Type III Double Eagles Revisited
My new book on Type III Double Eagles, to be released by April 2015, should increase demand for coins in this series. In 2000 my first edition about this popular series received the Numismatic Literary Guild Investment Book of the Year Award further boosting interest in double eagles. There will be some gorgeous photographs and innovative tools in this new edition that should greatly help collectors, investors and dealers who participate in this popular series.
Wall Street is Returning to Gold – but They Missed the First Big $100 Move
Wall Street (and most other global money management gurus) began 2015 by
bad-mouthing gold, predicting average 2015 gold prices ranging from $1050
(Goldman Sachs) to $1250 (Saxo Bank), but once gold hit $1280 after the “Swiss
surprise” on January 15, the Big Boys piled into gold. According to Bloomberg
last Thursday, “Investors are adding to gold-backed funds at the fastest pace in
three years. Open interest in New York futures and options is at the highest in
eight weeks, and money managers are the most bullish since August.” Analyst
Matthew Turner from Macquarie, a leading Australian investment banking group,
said “We have seen this month the largest SPDR inflows since August 2012 when
the Fed was revving up to do QE3 – so ECB QE is having a similar impact.”
Investors are realizing once again (as if they forget this fundamental fact)
that you sometimes cannot trust central banks to act responsibly.
2015 has just begun, of course, and gold can go down again, but we wonder how
these leading global investment banks feel about their bearish predictions,
published in late 2014 when gold was under $1200:
Barclays, a major British bank, expects gold to decline in 2015. Suki
Cooper, Barclays’ director of precious metals research, said gold would average
about $1,180 in 2015, vs. 2014’s $1,265 average.
BMO Capital Markets, a Canadian bank, projects gold to average around
$1,190 in 2015, with silver at $17.50, citing a strong dollar and low
inflation providing “little upside for the yellow metal in 2015.”
CIBC (Canadian Imperial Bank of Commerce) predicts an average price of
$1,200 for gold in 2015. They did not rule out a drop to $1,000 per ounce,
citing the likelihood for high volatility in gold prices in 2015.
Citigroup thinks the strong dollar and low oil prices will keep gold down
at an average price of $1,220, although they added, “there are increasing
reasons to think that further downside moves will be limited.”
Commerzbank, which predicted $1400 last year (one of the lonely “bulls”
among the generally bearish banks) now expect an average prices of $1,200
in 2015, with gold “falling to $1,125 per troy ounce on average in the second
quarter, though a gold price of below $1,100 is also conceivable for a time.”
Deutsche Bank projects an average price of $1,225 for 2014, adding
that “gold prices would need to fall towards $905 per ounce to bring its
valuation … back towards it long run historical averages,” meaning that “gold
can still not be considered cheap or even close to fair value.”
Goldman Sachs thinks gold will drop to $1,050. Their chronically
bearish analyst Jeffery Currie, head of global commodity research, says that
gold will fall as the U.S. economy reaches “escape velocity.”
Natixis, a major French bank, predicts an average gold price of $1,140
in 2015, based on an improving U.S. economy, strong dollar, and higher interest
rates, which supposedly put gold at a disadvantage.
Saxo Bank, a Danish investment bank, sees a year-end price of $1,250.
Ole Hansen, head of Saxo’s commodity team, said that gold will be weak in the
first half, with the second half looking better.
Standard Chartered, a British investment bank, said the gold average
price could reach $1,245 an ounce. “The current backdrop for gold prices
is one of the weakest ever because of the multiplicity of factors supporting a
bearish view, overlaid with the current dominance of the long U.S. dollar
trade.”
TD Securities, a Canadian investment bank, sees a 2015 average of around
$1,175 reaching a high of $1,225 by the end of the year. They also
predicted “weakness through much of the early part of 2015.”
UBS, the major Swiss banking firm said gold will trade in a range from
$1,167 to $1,239 in the near term. Specifically, they see “significant
resistance” at $1,239.80 (oh, really?), and support at $1167.30.”
A Few Contrarians are More Positive about Gold
Only a few major investment firms – usually bullion dealers or open-minded
research groups – gave gold a chance of rising above $1300. Here are two London
organizations which predicted $1300+.
Capital Economics, a London consultancy, expects a year-end price of
$1,300, with a possibility of reaching $1,400. Julian Jessop, head of
commodity research said the downside is “surely now limited.”
Sharps Pixley, a London bullion dealer, sees gold averaging $1,321 in
2015, and their lead analyst added “we are unlikely to see runaway prices beyond
the $1,450 level without either significant new product innovations or without
the sort of black swan events in the economy that few of us would wish for.”
For higher predictions, you need to turn to some of the perennial gold market
enthusiasts. Two examples:
Lawrence Williams, Mineweb editor, sees a 20% likelihood for a low of
$1,000 gold and $12.50 silver, but his high-price scenario (a 15% chance) would
be gold at a record high $2500 and silver at a record $55, with greater
likelihood (65% weighting) for an average in the middle, like $1325 gold
and $24 silver.
Marc Faber spoke early last week (January 13) at a Société Générale
global strategy meeting in London. Shortly before the Swiss announcement sent
gold soaring, he said “gold will go up substantially — say 30%” in 2015,
because of “highly inflated asset markets. Real estate is high, stocks are high,
bonds are high, art prices are high, and interest rates and short-term deposits
are basically zero.” Since everything else is overpriced, Faber concluded: “The
only sector that I think is very inexpensive is precious metals.”
A 30% increase would place gold at $1,560 per ounce at year’s end. Given that
the world’s investment banks have zero imagination outside a narrow $1050 to
$1250 range, Faber could be closer to the truth.
Update on Gold’s Latest Supply/Demand Fundamentals
As we have often said, gold’s supply/demand fundamentals continue to point to
higher prices in 2015:
Supplies are headed down. Brent Cook, editor of Exploration Insights,
says that “in 2015 or so, gold production is going to be tapering off as opposed
to expanding. That’s especially true given the current gold price and cost
structure. A lot of these companies aren’t making much money, or any money at
all. They'll be shutting down loss-making projects over the coming years.” He
adds, “We’re finding gold deposits, but most of them are not economic….It’s that
economic hurdle that is really at issue here.”
Central Bank Buying Continues. To central banks, gold is an attractive
“currency alternative” in their foreign exchange holdings. Central banks can’t
hold other commodities or stocks. They can only hold paper currencies or gold.
Many Western (European and North American) central banks hold plenty of gold,
but the rest of the world is trying to catch up. In 2014, central banks
accumulated over 300 metric tons of gold. Russia bought about half of the total,
152.3 tons through November 30. The next four biggest buyers of central bank
gold (through November) were Iraq, Kazakhstan, Mongolia and Turkey.
Asian Demand Grows. India has relaxed its 80-20 requirement (i.e., that
gold importers export 20% of their imports, despite heavy import duties) and
Indian demand has begun to recover. Chinese demand has also grown faster than
pundits expected at the beginning of 2014. For the year, Chinese gold
withdrawals from the Shanghai Gold Exchange (SGE) totaled over 2100 metric tons,
just 3.6% less than the record set in 2013. This is particularly impressive
considering that gold premiums recently rose to 7% in advance of China’s New
Year, which falls later than usual in 2015 (February 19), implying more demand
to come.
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