If there’s one thing the past five years should have taught us, it’s that gold is priced by speculation and philosophy as much as it’s priced by its so-called fundamentals. That complexity hasn’t prevented plenty of experts — as well as amateurs — from spouting off their opinions about where gold is headed. But, at the end of the day, only the folks who understand that trading gold is an art as well as a science have survived gold mania relatively unscathed.
So what does that mean for gold right now?
It’s not an exhaustive list, but some of the factors considered by professional forecasters when looking ahead for gold include …
- The strength of the U.S. dollar
- Supply and demand
- Interest rates
Of course, there’s nothing bearing down on gold right now as much as the prospective end to the Federal Reserve’s end to its bond-buying program … aka “the taper.” With the ongoing rebound in the economy, the Fed has little choice but to whittle down its monthly injection of $85 billion into the economy.
That’s what Goldman Sachs’ head of commodities research Jeffrey Currie said at the Commodities Week conference earlier this week, anyway. He and Credit Suisse’s commodities guru Ric Deverell both agree that the coming year’s best bet is shorting (or betting against) gold.
His catalyst for the proverbial beginning of the end for gold will be the inevitable raising of the debt ceiling by the Oct. 17 deadline, though the foundation for a sizable demise of gold prices will ultimately be fueled by a strong economy. Currie’s exact words:
“Once we get past this stalemate in Washington, precious metals are a slam dunk sell at that point … You have to argue that with significant recovery in the U.S., tapering of QE should put downward pressure on gold prices.”
When it’s all said and done, he and Goldman Sachs are looking for gold to fall to $1,050 per ounce at some point in 2013, off by 20% from the current price of $1,324.
The rationale makes sense. The perception of how well the economy is doing, however, might be a little too enthusiastic. And, perhaps more than anything, Currie’s call seems to ignore a couple of other key factors — like the fact that the dollar is currently weakening, and that interest rates are on rise.
As more evidence to that end, it was only a few weeks ago that Ben Bernanke shocked the world by deciding he would put off the tapering plans until further notice; his Congressional testimony fully indicated he was willing to maintaining the $85 billion per month QE efforts for months, if need be.
If the economy was good enough to deflate gold, it certainly would be good enough quell the Fed’s stimulation efforts.
Even if Currie’s outlook regarding the debt limit and the broad economy is right, there’s still another challenge for the bearish call on gold — investors (retail as well as institutional) would have to believe it and (metaphorically speaking) buy into it. But based on the chart’s action of late, the market might have already collectively drawn its line in the sand at a level much higher than $1,050.