On Tuesday, Deutsche Bank cut its outlook on gold and silver prices for 2013 and 2014. This move follows a growing line of banks and investment funds who are turning increasingly cautious toward precious metals’ price prospects.
The bank reduced its average gold forecast for this year by 12.1% to $1,856 a troy ounce and its 2014 forecast by 5% to $1,900/oz.
From an investment perspective, the continued structural strength of both gold and silver seem shaken. There are some strong arguments that support a turnaround in gold’s more than decade-long bull run. Such one, for example, is the reduced demand for gold reported by the World Gold Council.
Global investment demand for gold has moderated considerably over the past 18 months, largely a function of the apparent success of central bankers in mitigating the risks associated with excessive financial leverage within the Western economic system. The strength in other more conventional assets, such as U.S. equities for example, as economic conditions appear to normalize has also resulted in less urgency for investors to buy unorthodox investment instruments such as gold.
In addition, there appears to be a growing conviction among many investors and analysts that the U.S. dollar is likely to strengthen over the longer term. Since gold is priced in dollars, a strong greenback makes the metal more expensive to other currency holders.
In addition, the minutes of the U.S. Federal Reserve’s meeting of last week suggest that there may be earlier-than-expected policy tightening.
Quantitative easing by central banks such as the Federal Reserve has been a bastion of support for gold prices in recent years, reflecting the metal’s appeal as a hedge against currency weakness and inflation at times of high liquidity.
Deutsche Bank also slashed its price outlook for silver. The bank cut its 2013 price outlook on the metal by 16.8% to $37/oz and its 2014 forecast by 5% to $38/oz.
Several other banks have also reduced their gold outlooks in recent weeks, including Credit Suisse, HSBC, BNP Paribas and Goldman Sachs.
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