Morgan Stanley, UBS and BofA see higher gold prices later in 2013
Over the past few months, the economic environment influenced gold prices in a negative direction. Since September 2012, gold price droped nearly 12%. Since then, a number of market analysts have made a lot of bearish calls on the yellow metal. The weaker price is attributed mostly on the back of rising real interest rates. Despite that, three of the top financial service firms are still positive on gold’s bullish performance in 2013.
According to UBS commodity strategist Julien Garran, the gold market will enter a new rally from the beginning of Q3. The US Federal Reserve will have to reconsider the quantitative easing in the second half of the year. When that time comes, investors will need to decide what they are going to do according to the Fed’s actions.
UBS thinks that 2013 gold depends critically on the end of Fed’s quantitative easing.
There are two scenarios at present. Either the stimulus ends unexpectedly fast or the global economy faces a growth slowdown by mid-year as the monetary easing continues.
Yet, the financial firm is positive that the first scenario is not very much possible. That is because projections sugest higher oil prices and bond yields in the second half of 2013. Meanwhile, the synchronized global restocking cycle should be ending. Last but not least, there is a great chance for China’s authorities to tighten in order to combat rising house prices and inflation
This blend of factors will definitely lead to a global slowdown, according to UBS. Therefore markets will face deflationary pressure and growth slowdown. In respect, longer and larger quantitative easing will be needed.
Recent recovery of the US economy reduced the need for extended monetary stimulus. A mid-year slowdown will raise the quantitative easing need again. Therefore gold is expected to rally.
Elsewhere, Bank of America noted that that investor sentiment toward gold is at its lowest level since November 2008. Though, the bank sees the sentiment reading as a positive sign.
The yellow metal took a significant hit lately. Yet, it remains above the 1522/1533 range of sentiment lows. Hence, the long term bullish trend remains unaffected. It is important to understand that the sentiment has now reached its lowest levels, last seen five years ago. In terms of contrarian opinion analysis, the bottom is coming to an end with a bullish run ahead.
According to Morgan Stanley, gold’s bullish run from 2008 to 2012 was supported by two major factors. First, the global financial system stability lost the investors’ confidence. Second, the incomparable monetary easing by central bank gave back to gold. Yet, recently the yellow metal has returned to its default setting. But the historical pattern shows that consolidation phases are just catalyst before the next upside.
Morgan Stanley expects the third phase of the monetary easing. Japan is projected to install stimulus very soon. Other country will also try to prevent their currencies from strengthening too much in the weaker yen setting.
Therefore, the financial firm sees these circumstances as signs of considerable technical strength. At present level, gold offers a good value as an entry level to the trading range between $1,540 and $1,800 per ounce. Upside surprises are very possible in result of a third installment of the monetary easing.