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Report: Weak U.S. Economy & EU Fears Will Send Gold Above $1,900/oz by End 2012

Posted on August 3, 2012 at 4:15pm by Guest Post
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[Author’s note: the following originally appeared on CNBC.com]

Gold could be one of the few assets to profit from the political and economic turbulence in the United States as the “fiscal cliff” approaches, potentially creating a rally in the precious metal later in 2012 for it to reach $1,900 per ounce by the end of the year, analysts at HSBC said.

“Economic uncertainty, geopolitical tensions and the uncertainty of the U.S. November elections are theoretically gold-bullish,” and gold should perform better later in the year “when U.S. growth is poor and the dollar is weak,” a new HSBC report said.

[Related: Is the Gold Rush Over?]

“We expect prices to rally to above $1,900/oz by the end of the year. Patience is the most important commodity,” the report adds.

HSBC recommends holding onto gold as an asset that will gain in value as investors fear the future of the euro and dollar with governments and central banks expected to intervene to shore up their currencies’ strength.

According to commodities’ analysts at the bank, the outlook on gold is positive for the second half of the year despite the current stall in the gold rally due to a rise in supply, lack of demand in the jewelry sector and uncertainty about the European financial crisis and U.S. “fiscal cliff” approaching at the end of 2012, when the U.S. government must decide whether or not to increase taxes and introduce spending cuts, which could risk a slowdown similar to Europe’s.

Traditionally, gold has been a safe haven for investors looking to park their money in a stable asset, but so far in 2012, gold prices have slumped nearly $400/oz. From the record highs of September 2011 when an ounce fetched $1,920, prices have now fallen to around $1,600/oz over the last three months, prompting investors and analysts to question why the gold price isn’t racing higher as investors look for safe assets in a volatile economic environment.

HSBC’s analysts report that gold has previously bucked the trend of falling commodity prices because it is seen to be immune from governmental fiscal and monetary policies and as such it should, theoretically, attract investors as a “neutral” asset outside the risk on- risk off spectrum. Indeed, the report states, gold should retain its value as central banks seek to prop up their economic systems with quantitative easing that can undermine currency markets.

“The big four central banks have printed around $9 trillion during the current crisis, roughly equivalent to the total value of gold ever mined…[but] despite this long-standing pedigree as a safe haven, gold has noticeably failed to rally in the present economic turmoil.”

Rather than a rally, the eurozone crisis and uncertainty in the stability of currencies have led to a “contradictory dynamic” in investors’ reaction to gold, leading to the stall — but not a collapse — in the asset’s price.

“Periods of heightened euro zone concerns have typically led to equity market sell-offs, triggering margin-call-related selling in gold as investors seek to raise cash,” the report said.

“Also, U.S. dollar strength as the euro weakened in the face of persistent euro zone crises further weighed on gold [and] any safe-haven bid from the euro crisis has been offset by the associated rally in the U.S. dollar.”

“However, as the market becomes more fixated on the currency’s value as the U.S. fiscal cliff story gains greater traction,” they said.

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Comments (15)

cliffchism
Posted on August 4, 2012 at 3:01pm
Orrrrrr, the price of gold could be slightly depressed because it is so easy to purchase gold ETF’s, not realizing that the supply of paper, far outweighs the supply of physical.

If you can’t feel it, you don’t own it. When that realization comes to more people, you will see just how little gold there really is… and how high the price can go.
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midwesthippie
Posted on August 4, 2012 at 2:07pm
…?…gold isn’t going anywhere. it’s been teetering between the 1550-1650 range. the ultra rich and national governments have had their “sell-off” to take profits and pay debt (most purchased gold at 300 or less). they needed an artificial “high” point in the market to do that. who sets the gold “price”? if you see the price spike up…sell…there is most certainly a downward spike coming quickly…
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Individualism
Posted on August 4, 2012 at 9:51am
Don’t forget QE3 after the election likely.
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- chuck_in_st_paul
  Posted on August 4, 2012 at 10:14am
  @individualism, I think they’ll pull the trigger on that in the next 45 days in hopes of juicing the economy BEFORE the election. Just a thought…
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HorseDancer
Posted on August 4, 2012 at 3:04am
Today about $1600. One year ago about $1900. This half hour brought to you by Goldline.
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macpappy
Posted on August 3, 2012 at 7:13pm
Notable Trends:
When the price of gold goes up, the value of the dollar goes down. Things take more dollars to buy them, cost more. Juxtapose that with what we have heard lately about food prices going up. Mr bet is that the price of everything will begin to rise, and steadily do so. If Obama wins, it will stop and maybe the inflation can be held in check. If not, and Obama wins, the inflation could go hyper. Thats a bad senario there.
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SiToNiTsOrOs1
Posted on August 3, 2012 at 6:11pm
Tell Mitt Romney to consult GLENN BECK for his economic plan: Two topics will win the election – KILL THE JOB KILLING REGULATIONS i. e EPA and the tax code…AND STOP TAXING THE HELL OUT OF PEOPLE!! Instill confidence and people will go out there and get jobs.

OBAMA is a masked tyrant and is NO Bill Clinton. Romney: Grow some balls and kick some A**!!!
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contkmi
Posted on August 3, 2012 at 4:52pm
Problem is, if everything crashes, gold will just be one more commodity. And one can’t eat gold.
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- turkey13
  Posted on August 3, 2012 at 5:03pm
  The article didn’t mention poor mans gold – SILVER. If gold hit $2,000 then silver will jump from $28.00 to $ 50.00 an ounce. I disagree on gold and silver just being a commodity.If our dollar become worthless, we will go to a barter system. You will always be able to swap food, guns, ammo for something, but next in the line will be silver then gold.
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- Red Max
  Posted on August 3, 2012 at 6:04pm
  Right you are TURKEY, people also forget that silver and gold can be traded/spent anywhere on the planet no matter what shape or form, or who minted it.
  Report Post »
- Altair
  Posted on August 3, 2012 at 6:36pm
  If everything crashes, and you come up to my gate begging for food, don’t pull out paper money. You’d best have a few ounces of gold or silver in your pocket.
  Report Post »
- Mutiny
  Posted on August 3, 2012 at 6:43pm
  Gold and Silver have always retained value. Paper is paper. When we collapse(not if) you will need things to trade to get food, water, and supplies. People will still produce food. Things will be much more local until the government comes in cracks skulls and we are shifted into a global government where our Constitution is tossed out.
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- ManThong
  Posted on August 3, 2012 at 6:44pm
  Not true.. The last 100 years of Federal Reserve Bank money perversion is the exception to gold’s role as a medium of exchange. After the crash it will revert to the role it has played for the last few thousand years.
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- macpappy
  Posted on August 3, 2012 at 7:15pm
  If there is a real crash, and things go to hell, the best barter item will be ammo. bar none.
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- nowonuno
  Posted on August 3, 2012 at 10:33pm
  Well said. Tangible or not, gold is being over-hyped. The big money sellers are cashing in and when the bubble bursts, they’ll buy it back for much less and be poised for the next time. If you bought early and are cashing out before the crash…great. If you are still buying at the peak, you are propping up a false market. When things go south, the government will seize the gold or you will be hunted for it. Desperation knows no limits.
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