Some Analysts Turn Bearish as Gold Hits New Records
As gold prices continue to break new record highs, analysts are reviewing their targets with many predicting further gains. But not everyone’s bullish on the precious metal.
Tom Price, Global Commodity Analyst at UBS, believes gold prices will pull back by the end of the year once there is more clarity on the debt problems in the U.S. and Europe.
"Our expectation for gold price is [that] it will settle lower, below $1,600; we are forecasting $1,500 for 2011," said Price, who believes the buying in gold is short term.
"It relates more to uncertainty that gold prices have gotten to these levels," he added. "Our view is the U.S. economy begins it slow grind going forward, and that's a positive thing for the U.S. currency and a negative thing for the gold price."
Spot gold rose as high as $1,607 on Monday, supported by debt worries on either side of the Atlantic. Bullion has jumped 8 percent in the last 11 trading days, despite strength in the U.S. dollar. Prices of gold generally move in opposite direction to dollar strength.
Manpreet Gill, Asia Strategist at Barclays Wealth, observed that the last time gold prices had a similar run up in the 1980s, they were followed by a very sharp fall. "Peak to trough gold prices fell about 60 percent," Gill said. Click here for full interview.
Gold has been on an upward trajectory in the last five years, with prices more than doubling since the onset of the global financial crisis. A large part of the gains had more to do with buying by financial institutions rather than just central banks stocking up on their gold reserves, Gill notes.
"ETF backed physical holdings…is one good reason why prices have run up the way they have," Gill said. The SPDR gold trust - the largest gold backed exchange traded fund (ETF) - saw its gold holdings hit a record 1,320.436 tons in June last year.
"What that tells us is that, ultimately, gold prices we think are elevated not due to good reasons," Gill warned. “That also means that steep financial demand can also move prices sharply the other way should sentiment turn.”
"We're not fans of gold long term," he said.