Two 'outright' bears have second thoughts on 2014 gold price

After a dismal 2013 that saw gold lose 28% in value and suffer the worst price performance in 32 years, few predict a big upswing this year.

The median forecast for the fourth quarter 2014 of the nine gold analysts tracked by Bloomberg is for an average $1,165 an ounce gold price.

And historically the most accurate among them see gold sub-$1,050. Gold averaged $1,411 in 2013.

But gold's fight back this year – the spot price has gained 9.6% so far this year seems to have surprised a number of forecasters.

Edel Tully, precious metals strategist at Swiss investment and London bullion bank UBS, tells Platts she is moving from "outright bearish" to "neutral/slightly positive".

Not exactly a ringing endorsement for the metal, but Tully nevertheless sees a "journey down to $1,280 as a buying opportunity."

"[Further out] we see gold moving towards $1,350 in three months, up from $1,100 previously, as the underlying improvement in sentiment takes further hold among investors, and as gold is increasingly used as a tail-risk hedge.

Although we feel gold isn't deserving of a price tag north of $1,400, a price sub $1,200 seems similarly undeserved."

Tully also raised the bank's 2014 average gold price to $1,300 from $1,200 previously with the biggest driver for the more positive outlook "the large investor sentiment shift that is currently taking place."

However, she cautions "this shift is occurring amongst investors with a short-term horizon, and not among the more strategic, long-term players".

Some evidence of this view can be seen in the recent sharp increase in bullish futures bets placed by hedge funds, with net long positions jumping 17%.

The Economist Intelligence Unit is also having a rethink of its bearish predictions for 2014, commodities analyst Edward Bell tells FastMarkets:

“We will have to take another look at our price forecast – we were anticipating that it was going to fall to average $1,245 per ounce this year, but we will probably have to revise that up based on what we think the first quarter number is going to be," Bell said.

The EIU's fresh prediction? An average of $1,260 for the whole of 2014.

That's hardly earth-shattering good news for gold bulls, but at least in the words of Tully gold is no longer "the favourite asset to short or ignore completely".

Earlier this week investment guru and closely followed newsletter writer Dennis Gartman said he has quietly turned bullish on gold's prospects.

Gartman, who says he is not a gold bug, lays out three reasons for his change of heart; chief among them the fact that producers are cutting back on production:

"Beginning five and six weeks ago we started to see a lot of the mining companies— even the largest gold mining companies— begin to curtail production. That's always a sign of an end of a bear market.

"When senior management at the largest gold mining firms throw their hands up in dismay and begin curtailing production, usually within weeks the lows are going to be found. Decision by committee is always that way. It's slow; it takes time; and it's always late."

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