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Gold – central banks’ conscience

While gold prices in USD terms have steadily trended higher recently, the performance measured in EUR, CHF and other currencies was much less dramatic. Taking the volatility of Gold in EUR or CHF terms into considera- tion, we can say that prices hardly moved. So what triggered the drop in the USD? Yet again, monetary policy and the outlook of more unorthodox monetary policy. US-Fed members pointing to QE have paved the ground for the USD to weaken. The decision by the Bank of Japan to expand its balance sheet by 5 trillion JPY has also fueled the demand for real assets. Some market participants are already talking about a competitive devalua- tion in the currency space. Since we don’t expect any changes in monetary policy behavior from the developed world, gold prices should be well sup- ported and price corrections should be limited and short-lived.

Recommendations

We advise investors to hold on to long positions, as we target a price move towards USD 1500/oz over the coming 6-12 months. Given that the metal is now in overbought levels from a technical perspective and physical demand has dried up in recent days, new positions should wait for price setbacks, in our view. We see potential price dips towards USD 1250/oz, as short- term profit taking sets in on fading price momentum. Shorter term (next 1-3 months) we expect prices to trade sideways with USD 1400/oz as a high and USD 1250/oz as a potential low.

 

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