What's Next for Gold Prices? -- Barron's Blog

        By Johanna Bennett
        The selloff in gold and other precious metals of late poses a difficult question to investors: where do prices go from here?
        A range of strategists see more weakness for gold ahead of the Fed meeting in September.
        But Simona Gambarini, an analyst at Capital Economics, sees gold recovering to $1,200 an ounce by the end of the year and hitting $1,400 in 2014.
        ...we believe the pessimism is exaggerated...US monetary policy is likely to remain loose by past standards and any tightening is only likely to take place in the context of rising inflation risks, limiting the downside for gold. What's more, the price of gold has already fallen further than might be justified by the strength of the dollar alone...we still believe there is a good chance that a disorderly "Grexit" will support gold. Even Fed tightening might have a positive side for gold if it leads to increased volatility in the prices of competing financial assets -- notably equities and bonds. Official buying has failed to support prices. Even the large increase in China's holdings reported on Friday was less than might have been expected given the increase in total foreign reserves over this period. But viewed more positively, the still-low share of China's reserves held in gold (and those of most emerging market central banks) leaves plenty of room for further accumulation. We also expect demand from households in China and India to resume their strong upward trends.
        At UBS, strategist Edel Tully, call the weakness in gold "overdone, but favors remaining on the sidelines for now.
        The magnitude of the declines and the level of positioning suggest to us that the move is overdone and markets should recover from here. We don't think gold deserves to trade close to or below $1100 for a prolonged period, albeit any recovery from here is likely to be capped -- price action is likely to stay choppy, with weakness resuming heading into the September FOMC meeting...given the forcefulness of the recent price moves, we believe it's probably better to retreat to the sidelines for now and wait until prices stabilize -- thin summer trading conditions make trading more challenging and all the more difficult to read into price action. A healthy consolidation is likely needed before market participants gather enough courage to buy into this dip.
        Citi Research warns that outflows from ETFs, which picked up late last week, could continue as the market braces for anticipated interest rates hikes.
        Overall, safe-haven buying appears to be largely overshadowed for the moment by the gold-USD (U.S. dollar) relationship and Fed expectations. On this basis, we expect to see accelerated gold ETF redemptions in the coming months as we approach a Fed lift-off.
        Wayne Gordon and Giovanni Staunov, analysts at UBS Wealth Management Research, cut their three-month price target to $1,050, but sees prices back to $1,100 by this time next year.
        We still have a bearish short-term outlook on gold, anticipating further weakness to coincide with the Fed rate hike, either in September (our base case) or December. While we have traded below our forecast of USD 1,100/oz, we are reluctant to call the bottom here, given our view on further price decline once the Fed actually hikes rates. ETF holders particularly still have scope to reduce their holdings of gold markedly. Hence, we cut our three-month forecast to USD 1,050/oz from USD 1,100/oz previously. On a 12-month horizon, we see the environment turning more positive for gold as we expect US real rates to again shift into negative territory. We retain our forecast of USD 1,100/oz on a 12-month basis
        TD Securities says that talk of a gold move below $1,000 an ounce is "still premature" since any Fed tightening is likely to be "quite modest" this year, and U.S. inflation is expected to pick up along with the economic recovery
        Still, it would not take much to get us into $900/oz territory in this technical environment should something unexpected happen...A Fed miscommunication, an unexpected jump in yields due to liquidity constraints, a big positive data surprise, or jump in headline inflation into 2016 could all be possible catalysts for a price 'accident' leading to a sharp and short-lived gold sell-off.
        In today's trading the most actively traded bullion contracts fell 2% to $1,108.60 per ounce. The plunge has killed gold miners, such as Newmont Mining ( NEM), down almost 11% today, and dragged down shares of gold-focused ETFs.
        The SPDR Gold Shares ( GLD), the market's first and largest physical gold exchange-traded fund, declines 2% to $106.40, while the Market Vectors Gold Miners ETF ( GDX) fell almost 8% to $14.24.
        (END) Dow Jones Newswires

        July 20, 2015 12:53 ET (16:53 GMT)

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