Gold Bullishness Toned Down in 2013?

At the start of 2012, some market participants forewarned that gold’s performance was likely to be more moderate than in the past — and it was. While forecasts for 2013 tend to call for higher annual gold prices, many forecasters are again, directly or indirectly, toning down bullish sentiment.

Under the common school of thought, gold should have rallied during Q4 2012. That time period brought fresh announcements of US monetary policy in September and December, as well as much ado about the uncertainty and risks surrounding the US presidential election and the fiscal cliff. Added to those factors were other macroeconomic concerns and geopolitical risks in the Middle East. It was certainly a time when safety seekers and currency doubters should have been flocking to their preferred havens. Yet gold’s performance was less than stellar. It should come as little surprise then that gold has started the first quarter of 2013 in a lackluster state.

That raises the question of whether gold will prove resilient and re-emerge as star performer or whether the market is losing some steam.

Some market participants have taken a highly bullish stance. Morgan Stanley has forecast an average 2013 gold price of $1,853 and named the yellow metal one of its most preferred commodities for the year.

Morgan Stanley foresees QE3 and European Central Bank purchases continuing to weigh on the dollar, which in turn will strengthen gold. It also views low nominal and negative real interest rates, geopolitical risk in the Middle East and mine supply issues as supportive. The firm expects to see a recovery in Indian demand as the country becomes more accustomed to higher prices

“[W]e are confident that the gold price will achieve — and indeed exceed, at least temporarily — the $2,000 per troy ounce mark,” said Commerzbank, which predicts an average price of $1,950, in a report. The firm sees headwinds in the market diminishing and also believes Indian demand will rebound this year.

However, the prevalence of lower expectations for gold in 2013 cannot be ignored.

“The very poor price action of gold recently and the lack of bullish triggers leads us to moderate our expectations for gold and silver prices,” said Societe Generale, according to Kitco.

The bank remains “moderately bullish,” but it is amongst a growing crowd of lowered forecasts. Instead of $1,800, the firm projects gold will average $1,700 this year.

HSBC, citing the likelihood of a wide and volatile trading range, also lowered its average price by nearly $100, from $1,850 to $1,760.

CPM Group made a rather modest projection of $1,666 for 2013.

“A lot of what gold investors cite as reasons for gold to go up, we think is already baked into the price,” Rohit Savant, a senior analyst at the firm, told Kitco. “If you look at inflation, the gold price is reflecting that and much more,” he added.

Further, some foresee factors that were once considered drivers for the market acting more as support for prices this year. For example, much attention is being paid to the fact that central banks have converted from net sellers to net buyers.

Central banks are now consuming 10 to 15 percent of the annual gold supply, according to Nicholas Brooks, head of research and investment strategy at ETF Securities. Positive buying trends are expected to continue in 2013, especially among emerging nations, but Brooks warned that this does not mean prices will rise nor does it prevent prices from falling.

“You can see sharp downturns as well as upturns. But it does put in somewhat of a floor because central banks are in there buying,” Kitco quoted him as saying.

Last week’s release of the December FOMC minutes suggests that the gold market will remain very focused on monetary policy this year. When it was revealed that some members of the Fed believe that monetary policies should be reeled in during 2013, the yellow metal plummeted, with the downside effects flowing into this week.

Some suggest the price decline was an overreaction.

“While we agree that the Fed will eventually unwind the monetary accommodation, it is too early to react to this possibility given current macro and political developments,” said TD Securities, according to Kitco.

Noting that the economic environment is still weak and that the “very challenging negotiations” that remain to be had in Washington could result in spending cuts and thus an underperforming US economy, the firm said “this should reduce the probability that the Fed will tighten sooner, rather than later — reducing yield and lifting gold.”

Gold to fall after 2013?

There are others looking for the US economy to improve this year. Among them is Goldman Sachs (NYSE:GS), which lowered its forecasts before the new year. Goldman’s three-, six- and 12-month forecasts were reduced to $1,825, $1,805 and $1,800.

It was not these lower prices that created a stir and generated wrath and scrutiny from some market participants, but rather the firm’s suggestion that this year could see a top in gold prices. Goldman introduced a $1,750 2014 forecast.

But other firms have made similar calls.

Credit Suisse (NYSE:CS), which had previously projected an average price of $1,840, now projects that the metal averaging $1740. In lowering its 2014 forecast from $1,750 to $1,720, this firm is also projecting that 2013 will be the year that snaps gold’s streak of annual increases.

BNP Paribas (EPA:BNP) also trimmed its gold forecast before the arrival of the new year, projecting an average price of $1,865.

“[W]e expect gold to achieve a new record high in 2013 due to further monetary easing, less tail risk related to a break up of the eurozone and ongoing support from physical demand,” it said, according to a Kitco report.

However, after that, BNP is looking for gold to begin a gradual decline as the market anticipates the withdrawal of monetary easing in line with improving economic growth.

Citibank isn’t to be left out. The firm forecasts an average price of $1,750 for 2013, but sees that contracting to $1,655 in 2014.

Based on data from LBMA, Ross Norman, owner and CEO of Sharp’s Pixley, was crowned the most accurate London gold price forecaster throughout the 12-year bull run. He is less bullish on the metal pointing to the likelihood of a stronger dollar, investor fatigue and softer demand from India.

“People seem to be universally bullish, but the price isn’t moving,” Norman said. “To us that’s an indicator that the market may be topping out.”

“I don’t think we will see gold lower, but I think we may have to get used to a single-digit growth rate,” he added.

Describing gold’s bull run as “highly unusual,” investor Jim Rogers told Kitco’s Daniela Cambone that gold has been correcting for 15 or 16 months, trading sideways since September 2011, and he expects that correction to continue.

“I don’t know any asset in history that has gone up for 12 years without a down year,” he said.

Securities Disclosure: I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article.