While gold dropped to a two-year low earlier this week, many
market commentators continue to believe in the metal's long-term
fundamentals - although some are taking a more cautious approach in
Following a significant drop at the end of last week, gold futures
for June delivery fell more than 9% on Monday to $1,361.10 an ounce
on the Comex division of the New York Mercantile Exchange. Gold did
rebound nearly 2% on Tuesday.
, gold prices were led lower on Monday by data that showed worse
than expected economic growth out of China, while last week's drop
was based on speculation that Cyprus' central bank would unload
some of its US$600 million in gold, leading many to worry that
other European economies might do the same.
In a note this week, Jeff Wright, managing director, senior metals
& mining analyst at Global Hunter Securities explained that he
and his team tend to believe that the market can rebound "either
due to the realization of an overreaction to market events or lack
of true danger to gold and silver."
Still, while he believes in the investment thesis of gold and
silver long-term, he is lowering his 2013 and 2014 forecasts for
the metal to $1,475 and $1,600 respectively.
"We continue to believe in the longer-term story and rationale for
gold, but with a more cautious outlook going forward," explains
According to the
Wall Street Journal
Goldman Sachs also recently cut its forecasts for gold over both
the short and long-term, expecting gold to fall to $1,270 by the
end of 2014.
But Mike Turner, head of global strategy & asset allocation at
Aberdeen Asset Management in the UK notes that while gold is now
seen as another risk asset and trades more like other commodities,
investors should not forget about the metal's attractions.
"Inflation remains a risk, however distant, and gold remains one of
the best insurance policies against this threat. Equally if
deflation prevails this brings into question the soundness of fiat
money, in particular currencies such as the euro which seems much
less stable at the moment and gold represents the best store of
value against that prospect. Central banks, particularly in
emerging markets, are only just beginning to increase their
exposure to gold as they look to diversify away from US treasuries
and the US dollar," he explains.
In the wake of gold's recent volatility, the World Gold Council
also departed from its usual policy not to comment on price
movements in the market, issuing a statement earlier this week to
remind investors that "taking a short term view of any asset's
performance is fraught with danger."
"We believe that despite the current turbulence, the long term
fundamentals of the gold market remain intact. There are many
different types of holders and buyers of gold, from investors who
buy it as a long-term store of value and preserver of wealth,
through to speculative investors who seek points in the market to
enter and exit making a trading profit. Any appraisal of the
investment market for gold needs to take all of these facets into
account," notes Marcus Grubb, the World Gold Council's managing
Meanwhile, Edison Investment Research in London is continuing to
maintain its gold equity valuations based on a long-term gold price
of US $1,676 an ounce for the moment.
The principal risk to its forecast, explains Charles Gibson,
director and mining sector head, is in the form of any rise to
long-term US interest rates and/or any contraction in the monetary
"Given continued lackluster economic growth indicators from the US,
Europe, Japan, and significantly, now China, Edison deems this risk
to be small," he adds.