Gold: Capital Economics Still Sees $1,200 Gold At Year-End
Capital Economics is maintaining its end-of-2014 gold price outlook of $1,200 an ounce even though the precious metal has fallen to around $1,161 in each of the last two sessions. “There are, of course, plenty of reasons to be negative on gold,” says the firm, citing low oil prices that eased inflation fears, ideas that the U.S. Federal Reserve has edged closer to hiking interest rates and more monetary easing by the Bank of Japan that has boosted equities and the U.S. dollar and in turn tends to hurt gold. “Nonetheless, we are sticking with our end-2014 forecast of $1,200 and continue to expect the price of gold to rally to $1,300 next year and $1,400 in 2016,” Capital Economics says. “In part, this reflects industry guidance that $1,200 now represents the marginal cost of production for some gold miners. While prices can obviously fall below cost for a time, output cuts should eventually set a floor around this level. Physical demand from emerging markets should also provide support.” There is also potential for investor sentiment to be helped by a Nov. 30 Swiss referendum that would require the country’s central bank to increase the share of gold in official reserves, the firm adds. Further, an extended period of negative inflation in the eurozone could revive safe-haven demand. “And in the U.S., even if the Fed does tighten sooner than most expect next year, realinterest rates and bond yields are likely to remain historically low,” Capital Economics says. Meanwhile, silver’s recent underperformance has left this metal “looking even cheaper relative to gold,” Capital Economics says, reiterating its expectation for a rise to $20 by the end of 2015 and $23 by the end of 2016. |
