I’m reading a provocative and interesting research piece from Societe Generale on gold. They’re considerably more bearish than the consensus is. They offer several reasons why the gold bull might be over:
“Our view on gold is considerably more bearish than consensus. In our recent Commodity review ‚Are we there yet?‛ we highlight our central scenario of gold price activity over 2013. Specifically we forecast that gold prices will average $1500/oz over the course of 2013 and will gradually drop to $1375/oz by the end of the year. This 15% fall is quite dramatic especially compared to the Bloomberg consensus forecast of $1752/oz by the end of 2013.
The gold price is, in our view, in bubble territory. Investors have pushed the gold price sharply higher over the past 10 years with the past five-year rally driven by fears that aggressive central bank QE would lead to very high inflation. But inflation has so far stayed low (US inflation has been trending lower since late 2011) and now we are beginning to see: 1) the economic conditions that would justify an end to the Fed’s QE; 2) fiscal stabilisation that has passed its inflection point; and 3) a US dollar that has begun trending higher. It seems unlikely that investors would want to add much to their long gold positions in this context. If so, the gold price would trend lower at pace as the physical gold market is seriously oversupplied without continued large-scale investor buying. Selling by investors would add fuel to the fire.”
Source: Societe Generale
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.