Date: 02 Jul 2013, Economics and Finance
Question setter: Mettletest Panel

Gold Price

Stock & bond prices have been in turmoil in recent days but Gold has been falling for months, with big sell-offs in April and June. Will the Gold price still be below $1300 per oz at the end of July 2013? (London pm Gold fixing for 31st July).


Question not answered

Expert opinion:

Answer: Yes

Selected Expert Answer from John Karslake:
The fundamentals of physical supply and demand seem to have less effect on gold than on almost any other commodity. It is used in times of perceived economic uncertainty as a store of wealth, protected from the predations of inflation or losses from currency depreciation. Gold may be relatively neglected when investors have confidence in other assets, especially those that offer a yield - share dividends, bond interest or property rents. During these "stable" times, jewellery demand and national government stockpiles may be the chief drivers of the price. As investor sentiment is so key, gold traders often rely on chart analysis to predict price moves. They use charts to determine trends or support and resistance levels, dictated by previous trading behaviour. Chartists are generally of the opinion that the recent up-trend in the gold price has been convincingly broken, as have some key support levels. These factors are likely to maintain selling pressure on any bounce in the price, as holders of gold and gold futures seek opportunities to sell and bears establish short positions. Despite continuing strains in the Eurozone, China's economic slowdown and political unrest in Brazil, Turkey and the Middle East, scares are unlikely to drive the price over $1300 by end July.

Answer: Yes

Selected Expert Answer from Mettletest Panel:
The spell has been broken. After several years of relentless rises, the gold price has had such precipitate falls of late that many long-term holders will be fearful of losing their gains and will be selling into any small bounces. So, though I think it is quite possible that we have a bounce back above $1300 sometime in the first 3 weeks of July, I shall be very surprised if we are not back below the level at the end of July. I suspect we are entering many months in which gold trades a range between $1000 - $1300 oz. Sentiment will fluctuate between a belief that interest rates will start to rise again (the enemy of strong gold prices) and fears of economic slowdown (countered by governments aggressively printing money and the attendant inflation risks). The growing acceptance that the stimulus of quantitative easing - providing money to boost the economy - has run its course and that upbeat messages about probable future growth could be more effective, will dampen inflationary expectations. Gold is unlikely to revive its price uptrend and will be below $1300 at the close of July.

Answer: No

Selected Expert Answer from Mettletest Panellist:
We have seen a huge sell off, a bigger percentage fall in the gold price than anything since 1920. This will have shaken out the vast majority of jittery holders; a "capitulation" as the market calls it. Fund sales won't be repeated to the same extent. Many participants and would-be participants will see gold as being cheap at levels around 30% below the highs and 20% down in June alone. Many of the the influences that propelled gold's rise have not disappeared. Inflation risks remain high from government and central bank decisions to provide easy money. Many countries, outside the Eurozone, view currency devaluation as a way of restoring growth and competitive devaluing makes gold an inviting refuge to those not wanting to see the worth of their currency holdings dwindling. Eurozone problems are merely on hold and the break up of that currency will become a fear again. Meanwhile, political unrest, not only in the Middle-East but in growing economies like Brazil and Turkey, will persuade investors to return to gold. We will need a week or two of steadier prices to restore nerves. The importance of physical supply/demand considerations will grow. Production will fall, jewellery demand rise. By the end of July prices will be on the up again and almost certainly above $1300.

Outcome: No

Comment on outcome from Mettletest Panellist:
The fixing was $1314.50. Short-term prices have remained quite volatile and gold staged a good recovery in July as markets generally regained their poise. Hints of stimulus from the Japanese Central Bank, calming words in the US and a general sense that interest rates globally will not be outpacing inflation all fuelled the buyers. In Japan Abe's party won election victories in the upper house, strengthening his position. He advocates monetary easing, which in turn boosts the attractions of gold as an inflation hedge. Predictions, by the World Gold Council, of strong demand for physical gold in China painted a rosier picture of the supply and demand balance after concerns that selling has been accelerating as investors pull out of gold funds.