While experts have lowered their gold price forecasts for 2012, new estimates are still above current gold prices. Demand in India is expected to rise in the second half of 2012 compared to the first half, and more certainty in the economic picture could, in an inversion of the usual trend, boost gold prices.
Gold prices struggled to maintain any upward momentum in the first half of 2012, but that is not stopping many analysts from remaining bullish – albeit with a few concerns – about the precious metal for the rest of the year.
According to Bloomberg data, the metal was up about 3.4 percent until July 3 of this year. Gold futures for August delivery rose 1.4 percent to $1,620.10 an ounce during early trade on July 3 on the COMEX in New York, below the record high of $1,923.70 reached on September 6, 2011.
Often seen as the commodity of choice for those seeking safety during bleak economic times, gold did not perform well in the first half of 2012 despite continued instability in Europe, lackluster growth in the US, and no real answers as to when the global economic picture will look better. While it may look like gold’s safe haven status is under threat, many analysts say that the precious metal is still bound to rise this year and next. They may have lowered their forecasts for 2012 gold prices, but even new estimates show that the yellow metal’s price still has some way to go before the year ends.
India 2012 demand lower
India, the biggest market for gold, has seen consumption decline in 2012, and it is expected that consumption for the full year will be down 30 percent compared to 2011 as precious metals are more expensive now that the government has changed the duty structure on gold and silver. However, demand is expected to pick up in H2.
“Imports in the second half of the calendar year will be around 300 tonnes, higher than what we have imported in first half, which was 250 tonnes,” Bombay Bullion Association President Prithviraj Kothari was quoted as saying in The Times of India.
While economic turmoil usually drives bullion higher, gold prices have moved in sync with riskier assets since late last year due to tight credit conditions caused by the Eurozone debt crisis. And as long as uncertainty in Europe remains, gold could stay under pressure despite the expected easing from central banks, said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.
Rate cuts could spark gold rally
“Rate cuts could spark a rally in gold, but if there is still uncertainty, credit conditions could remain tight which would hold gold down,” Friesen added.
Last month, Societe Generale cut its gold outlook to $1,700 a troy ounce from $1,810 an ounce. It expects gold to challenge the $1,800 an ounce level before the year ends, especially if the US Federal Reserve implements a third round of quantitative easing.
Goldman Sachs also stood by its forecast for a rally in gold this year, stating that the precious metal will advance to $1,840 an ounce over six months as the US central bank embarks on a third round of stimulus.
“In early 2009, we suggested that gold had become the currency of last resort, overtaking the U.S. dollar’s status due to the rising risk of sovereign default and debasement concerns,” it said in its May report, adding that even though the US currency advanced and gold fell on the European crisis in recent months, “it is too early for the dollar to reclaim this status.”
Case for gold price rise
The case for gold rising remains in place, said Matthew Carr, a commodities specialist at Investment U. He expects it will be six months before the next big rise in gold prices, but believes that $2,000 gold is more of a possibility than triple-digit gold.
“So the reality is, we’re in a seasonal bearish period inside what I believe is a larger bull run,” he said. “We’re in stasis – a holding pattern. A breather. We saw this same stall from April to July last year when gold mainly hovered around $1,500 and dipped in the $1,400s a few times.”
But Carr cautioned that the macroeconomic picture remains tenuous. “Pick your spots over the next six months, and look for gold to move higher in the last half of the year.”
Securities Disclosure: I, Karan Kumar, do not have equity interest in any of the companies mentioned in this article.