ETFS, Sharps Pixley see opportunity for gold price rebound, despite conflicting indicators
Despite gold falling to a new six-month low of $1,599, ETF Securities and precious metals dealer Sharps Pixley are among those who still see possibilities for a rebound in the price.
ETF Securities said that technical positions had contributed to pushing the price down over recent months. The precious metal is also struggling as investors seemingly rotate back into more risky assets such as equities. ETFS pointed to World Gold Council reports suggesting investors were poised to rotate back into more cyclical assets.
But the ETF provider also noted that the new lower price level means that the asset is now seen as more attractive to certain investors again. ETFS noted said that ivestor activity in China has surged, with volumes on the Shanhai Futures Exchange at record levels.
And it is also the case that despite apparent appetite for more risk, investors are also wary of persistent macroeconomic challenges.
“Macro fundamentals suggest a potential attractive entry level, as global financial markets remain awash with liquidity, global interest rates are expected to remain extremely low for the foreseeable future, and key macro risks are lingering, particularly for the eurozone economy,” ETFS said.
Sharps Pixley in London said that there were other reasons to expect the price of gold to rebound.
One is the commitment by the G20 not to engage in competitive devaluations in order to make their exports more attractive. But with many in this group of countries experiencing recessions or poor economic growth, it suggests monetary and fiscal policies will be looser, which would support the price of gold, Sharps Pixley said.
Meanwhile, the tendency among hedge funds earlier in February to reduce their bets on rising commodities pricing is linked to expectations that the Federal Reserve’s “QE infinity” could end sooner rather than later – which would hit the price of gold.
Minutes from the FOMC, which sets key interest rates in the US, are expected to point the way on QE when published 20 February , but with fewer speculators’ contracts in the market, Sharps Pixley said that the “cleaner positioning can prepare the stage for a gold price rebound”.
It also noted the surge in trading on the Shanghai Gold Exchange, saying that this was a result of traders returning to the market after the Chinese New Year celebrations, and taking advantage of a 3.37% drop in the gold price last week.
Angelos Damaskos, CEO of Sector Investment Managers, has warned that a supply crunch could be on the way for the gold market, potentially sending the price up to $2,000/oz
Commenting on the fundamentals of gold miners, he said that they have been adjusting business plans in light of the price weaknesses experienced over the past six months, to focus only on high grade deposits.
What this means is that miners are focused on profitability not production volumes. Should demand for gold increase again because of macro events, then it will exceed supply, hence sending prices up, Damaskos said.