The current momentum in the gold market that has pushed prices up nearly 10 percent this year is overdone, Macquarie said, forecasting an average price of $1,255 per ounce in 2015.
Gold will average a higher $1,303 in 2016, the bank said in a briefing on Tuesday, which is close to current spot prices of around $1,295 per ounce, up from a 2015 open of $1,182.40.
“Investors are moving back in a decent amount – we saw the highest ETF inflows in January so far since 2012, the futures long position is also the highest since September 2012 and I think the reason is that central banks are losing control and investors don’t like it,” Macquarie senior analyst Matthew Turner said.
“We’ve seen major policy changes, a lot of FX volatility and a new QE programmes that people don’t really understand,” he added.
Last week, ECB president Mario Draghi announced that the bank will buy 60 billion euros per month of eurozone government bonds from March this year until at least September 2016 to lift inflation and support economic growth.
Investors are also scrutinising the monthly statements from the US Federal Reserve for clues to when it might raise interest rates. While earlier estimates that the central bank will start lifting rates from the middle of this year look ill-founded given slowing world growth prospects and uncertainty in Europe, Macquarie has retained its original forecast for a first increase in June.
“There’s something in all of this, in that it probably has raised the base price of gold, but we think it is overdone,” Turner added. “We think the underlying economic data and some of the more high-frequency data is not so bad around the world and the oil price falling should really boost GDP growth in most countries.”
If and when the US chooses to raise its interest rates from near zero, gold’s appeal as an investment vehicle will be hit – investors will seek more yield-bearing assets such as equities and bonds.
“At some point, we expect the dollar will rise and gold will fall,” Turner said. “Add to that seasonal factors and maybe the second quarter will be a weaker period for gold… in the medium term, however, we’re a bit more bullish – the reason for that is strong physical demand.”
Buying by India and China, the world’s two largest consumers of the metal, is likely to help any price rallies into the end of the year, Macquarie said – it sees significant increases in Indian and Chinese imports of gold this year, underpinning the price.
“Over the last few years both [imports in India and China] have been strong at times and weak at others but this year both should rise together,” Turner said.
Still, investors should be careful about interpreting import data because it often just means the price is weak and supply is high, he added.
(Editing by Mark Shaw)
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