Gold presents a very strong positive outlook in the long term despite a rough 2012 so far.
So far this year, gold seems to be stuck in a little bit of a slump as investors overlook bullion for bonds and the dollar, just seven months after Bank of America Corp. announced that Europe's debt crisis would send prices to a record $2,000 an ounce. The yellow metal has fallen 19% by May 16th from its closing high of $1,891.90 in August 2011. “People are moving to the dollar because of liquidity,” says Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.7 billion of assets. “Gold has had extended periods in this bull run where it has backed up and given up some of those gains,” he said, predicting $2,000 in the first quarter of next year.
Bank of America was joined by Goldman Sachs Group Inc., Morgan Stanley and Barclays Plc in urging investors to buy in December and January. Now, after gold fell 10% in a 4-month slide through May, they are claiming that prices will rebound this year or next as the Federal Reserve continues to shore up the world’s biggest economy by easing monetary policy and devaluing the dollar. I fully agree with this as well. With another quantitative easing looking even more likely after recent unemployment data, I think gold is going to have a pretty good run by the end of the year too.
In support of this possibility, Soros Fund Management LLC, founded by the 81-year-old billionaire, more than tripled its investment in the SPDR Gold Trust in the first quarter to 319,550 shares now valued at $50.2 million, according to an SEC filing of May 15. Paulson & Co., founded by the 56-year-old investor who became a billionaire in 2007 by wagering against the subprime mortgage market, still holds 17.3 million shares in the SPDR Gold Trust, now valued at $2.72 billion, per a May 15th SEC filing. Paulson is seeking to reverse record losses last year caused by an ill-timed bet on an economic recovery.
In further support of a healthy optimistic viewpoint on gold prices, data from the IMF showed that Central banks, the world’s biggest owners of gold, have added to their reserves for 14 straight months through March - this is touted to be the longest streak since 1964. Investor demand for gold coins is accelerating, with sales of American Eagles more than doubling to 53,000 ounces last month, according to the U.S. Mint’s website. Comex data show that the 10 most widely held options confer the right to buy bullion at prices from $1,800 to $2,500 between July and March 2013. Looks like the outlook doesn't seem too bad for the yellow metal still eh?
“The $2,000 target has moved further away, but it still holds,” says John Stephenson, who helps manage $2.7 billion at First Asset Investment Management Inc. in Toronto and predicted in November that prices would reach $2,500 in the next several months. “We will see some easing, and that will push gold higher, but the reality is that we are on hold until the outcome of the Greece elections.”
Of course, forecasts have been a little overly optimistic in the last several months. In December, Goldman predicted that gold would reach $1,840 by early June. In January, both Barclays and Morgan Stanley said that it would average $1,850 and $1,810 this quarter. In actuality, the metal averaged about $1,619 since the end of March.
Goldman now expects prices to reach $1,940 in 12 months, while Barclays predicts an average of $1,790 in the fourth quarter and Morgan Stanley forecasts $2,000 in the final three months.
These new forecasts seem more realistic and certainly support more of a long term valuation, for which gold has really shined for in the past - bullion is heading for its 12th straight annual gain, after temporarily giving up its gains for the year last month. The metal rose almost SIX-fold since the end of 2000, beating the 24% advance in the S&P 500, with dividends reinvested, and the 90% return on Treasuries. The DXY Dollar Index actually fell 25%.
“Gold is still going to $2,000 an ounce this year,” says Michael Widmer, an analyst at Bank of America Merrill Lynch in London, who predicts a fourth-quarter average of $1,875. “It’s just going to take a little bit longer to get there.” At the time of this writing on Thursday morning, gold has retreated a bit down to just below $1,600, giving long term speculators (like me) another decent entry target to add to our positions.
As for those of you observing from the sidelines, just keep in mind that the second half of this year could see some decent gains and this could therefore be a good time to start looking for temporary dips to enter in on.
Be safe, be wealthy and above all else, be happy.
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