Societe Generale marks the end of gold era with a forecast cut


Societe Generale came up with a new 27-paged special analysis report on gold prices. The titled of the analysis is called “The End Of The Gold Era” predicts bearish price developments.

The basis forecast for 2013 gold suggests an average price of $1500 per ounce. By the end of the year the bank expect prices to hit $1375 per ounce.

These expectations are much more bearish than the agreement, which calls for gold to end the year at around $1,750 per ounce.

The analysts at Societe Generale expect a bulk of negative factors could initiate the beginning of a longer-term bear market. That is mostly driven by the rising interest rates trend. In addition the optimistic prospects of the US economy and respectfully improving dollar add more to the bear side factor.

According to analysts leader Patrick Legland the number of negative drivers is growing. One the most vivid is the professional sentiment. We have already seen the strong buy back in ETFs. Evidence is the growing will of money managing investors to trade from the short side. Therefore gold may have gone on a long solid slide.

It is certain that this latter trend is a massive bear as it threatens to develop a huge supply glut. But it is most important that the bearish trend has only intensified in just the last few months. In respect the bank highlights two facts:

Gold ETFs have dumped roughly 140 tonnes of gold since the beginning of January 2013. In February the ETF market faced the largest monthly outflow ever recorded.

Moreover, the overall hedge funds investor outright short in late February was at its peak in 12 years.

SocGen noted that one of the most respectful fundamentals was the Federal Reserve’s monetary easing program. It has benefited gold by fears of inflation propelled by the quantitative stimulus.

Yet the worldwide inflation rate stayed low so far. Inflation in the US has been trending lower since late 2011. In affect the lower inflationary rate brought 3 important tendencies.

The current US economic conditions are coming to a level which could justify a possible end to Fed’s quantitative easing.

Fiscal stability has passed its inflection point already.

The US currency stepped back on track as it stated trending higher.

In respect of this statistics investors are not likely to willingly add much to their long gold positions. This takes to a point of contention that not everyone agrees with. And this is the long expected exit plan of the Federal Reserve. The bank basis projection sees a continuously growing Fed balance sheet with an $85bn per month expansion rate through September. Till that point purchases may be moderately contracted to $65bn per month. The tapering would the mark of being fully terminated at the end of 2013.

In the analysis report Societe Generale looks up to two bearish gold scenarios.

In the first scenario the US unemployment rate falls sharply while triggered an early end of Fed’s asset purchasing program.

The second scenario also projects Fed to cut asset purchases prematurely but on the back of rapidly rising inflation expectations.


Please enter your comment!
Please enter your name here