Author: Paul Ploumis23 Jun 2014 Last updated at 01:30:15 GMT
EDGWARE (Scrap Monster):Gold Investing will "suffer" from a rising US Dollar and higher interest rates, says a new cross-asset report from French bank and London bullion market-maker Societe Generale.
Ahead of Wednesday's monthly Federal Reserve announcement – when the US central bank cut the pace of its QE asset purchases, but left interest rates at zero for the 66th month running – "US economic data is improving," said the report.
"We expect [QE] tapering to continue until the end of the year and tightening to eventually start in Q3 15. So real interest rates – over and above the rate of inflation – "should rise," SocGen's analysts believe, weighing against gold investing prices as the US Dollar also rises on their forecast.
Western money managers are forecast by SocGen to "continue off-loading" gold investing positions in exchange-traded trust funds – now holding 40% less gold bullion than at end-2012's peak – while mining companies make a return to selling gold forwards to "hedge" their exposure to lower prices ahead.
Gold miners as a group sold nearly 18 months of global production forwards as the 1980-2000 bear market bottomed, buying it back at rising prices with the world No.1 – Barrick – finally closing its hedgebook in 2009.
Investment analysts have as yet not reported any sizeable return to mining producer hedging. But "what is of greater concern" short term, says a separate note from commodity analysts at Standard Bank – the South African institution now selling a controlling stake in its natural resources division to ICBC of China – "is that with the gold price rallying...gold demand in China specifically seems on the wane again."
Pointing to lower and now negative Chinese premiums for gold bars compared to London prices, Standard Bank's team "believe that for physical demand to improve in Asia, and China specifically, the gold price would need to move further down."
Swiss bank and London market-maker UBS's precious metals analyst, Edel Tully, also points to weak demand for physical metal, calling the recent rally in prices "short covering" by bearish traders rather than fresh investing.
The US Fed "will not alter their tilt toward tapering nor interrupt their debate about when to tighten [rates] and how quickly," says Tully.
"Combined with the fact that gold is still trading above its long-run [mining] cost and short-run marginal cost," SocGen's note says, the French bank forecasts a decline in the gold price to $1000 per ounce by end-2016, recommending instead "high exposure to risk assets as global growth accelerates."