Deutsche: Gold price has another 30% to fall – and soon
On Tuesday gold stabilized but hovered near five-and-half year lows struck last week after a closely watched report showed global gold demand at the lowest in six years , followed by a prediction of a 30% fall from today's levels.
Futures contracts in New York with August delivery dates were exchanging hands for $1,095.10 an ounce in after hours trade on Tuesday and flat compared to yesterday's close in another day of light trading as anxious investors look for fresh direction for the metal.
A return to its recent dip below $1,180 would represent a 50% retracement of the metals 12-year bull run, but new analysis from Deutsche Bank predict a much greater decline than that.
"Gold would need to fall towards $750/oz to bring prices in real terms back towards long-run historical averages," according to a new report from the investment bank quoted by Financial Review.
The Deutsche Bank analysis factors in world growth, the US dollar, money supply and central bank gold purchases with fair value calculated at $785 an ounce.
According to this model, the long-run average price adjusting for consumer inflation or CPI is $770 and when taking into account price appreciation at the factory gate (PPI) that figure falls to $725:
"We believe financial forces imply fresh lows in the gold price in the months ahead," said the bank. "We believe the adjustment in US long term real yields and the US dollar is still incomplete and interest rate and dollar markets will continue to move higher heading into next year and beyond."
Only falling oil prices could support gold as it could lead to defaults in the sector and delay the Federal Reserve hiking of interest rates:
"Not only could lower energy prices and US inflation delay Fed tightening but we are already seeing lower oil prices push US energy corporate bond spreads to their widest levels since the beginning of the year.
"The risk of a default cycle for US energy names and a broader credit event spilling onto US financial markets may provide some welcome support for the gold market."
Deutsche Bank is the most bearish on gold, but is not the only investment bank predicting sharp losses ahead.
Chief commodity strategist at investment bank Goldman Sachs, Jeffrey Currie, who has been bearish on gold since 2012, sees gold heading below $1,000 an ounce, while in the annual gold forecast survey by the London Bullion Market Association of the 35 analysts polled, five predicted a dip below $1,000 in 2015.
Adam Myers of Credit Agricole was the most bearish with $950 as an average and a low point of $880.
Futures traders are also anticipating more weakness with so-called managed money investors such as hedge funds going short – placing bets that the gold price will decline – to the tune of 12.1m ounces or 340 tonnes, a new record high.
According to the Commodity Futures Trading Commission's Commitment of Traders data for the week to July 21, large speculators now hold a net short position for the first time since at least 2006, when the data was first being tracked.