Capital Economics has revised down its year end price forecast for gold following the Greek ‘No!’ vote. It now expects the gold price to be around US$1,275 an ounce by the end of 2015.
In a note published yesterday, Julian Jessop, head of Commodities at the macroeconomic consultancy, admitted frankly: “…one thing that has not played out as we had expected is the lack of safe-haven demand for gold. This partly reflects the markets’ generally relaxed attitude to the prospect of Grexit and the risks of contagion in particular.”
He cited the Portuguese government bond yield, which is still low by past standards as evidence of this.
“In addition, with the US economy strengthening and the Fed still likely to raise rates later in the year, what safe-haven demand there is has been mopped up by the dollar,’ he said.
Jessop concluded: “We continue to think that there is still a significant chance that ‘Grexit’ unsettles global markets further and lifts gold. Nonetheless, given the lack of safe-haven demand thus far and our expectation that the Fed will press ahead with a first hike as early as September, we are lowering our end-2015 forecast for gold from $1,400 to $1,275.”
However, he remains positive on the gold price in the medium term and expects it to reach $1,400 by end-2016, underpinned by strong demand from China and India and from the official sector.
Mitch Feierstein, fund manager and the author of Planet Ponzi believes gold at its current level is a compelling buy and will go up substantially sooner than most markets ‘pundits’ believe. He explained: “Western central banks have been manipulating prices in every asset class, especially gold, for too long. When markets lose all confidence in our non-elected central banking ‘omniscient Gods’, they lose control of the price of physical gold when that occurs, they lose control of fiat currency. “
He added: “In times of grotesque debt accumulation, rampant asset inflation and distorted valuations physical gold is the one currency you can trust to hold it’s value”.
US interest rates
As to the likelihood of the US Federal Reserve raising interest rates? Feierstein is deeply sceptical.
“Ask your self how many times the Fed has postponed the rate increase in the past 7 years of Zero interest-rate policy (ZIRP) – Do they still have credibility? Interest rate ‘normalization’ by the Fed is a fantasy, it will not happen in our lifetime. If the Fed raises rates, a gigantic ‘IF’, it may do so as a token so they have room to cut again in the future.
“The Fed has waited far too long. It would take the Fed 6+ years to ‘normalize’, assuming Yellen’s 25 basis point trajectory of increase.”
He concluded: “The current ‘temporary’ ZIRP cycle has been 7 years – I predict, we will have a recession within 18 months allowing these idiots to unleash more quantitative easing – this will eventually cause hyper-inflation.”
The writer hold both physical gold and gold ETFs.