Investors should make the most of recent falls in the price of gold and buy the precious metal by the summer to benefit from another record high by the end of the year, analysts said on Tuesday.
Spot gold touched its latest peak near $1,800 at the end of February. Since then, the price of gold has declined, although the precious metal rose in the past four sessions.
It is currently trading around $1,650 an ounce.
“I think that for another couple of months gold is likely to stay under pressure…but looking forward, by the end of the year we do expect another record high for gold because we do expect more monetary easing, not just from the Fed but also by the ECB and also by the Asian central banks,“ Eugene Weinberg, analyst at Commerzbank told CNBC on Tuesday.
He believes that there is no rush to get into gold as the prospects for now are “a little bleak” due to the decreased likelihood of further monetary easing by the Federal Reserve in the short term.
“I am pretty confident that for the time being this medium-term trend is likely to stay downward and we are likely even to see prices below $1,600 short term,” he said.
But by the end of the year he expects gold to move above $1,900/ounce.
Exactly how high will be dependent on the aggression of monetary easing carried out by central banks, he said.
Analysts at Morgan Stanley agreed the recent fall in prices did not signal the end of the bull market in gold.
“We attribute the most recent price decline from the late February peak to the market's declining conviction that the Fed will adopt a new round of quantitative easing (QE3) or other unconventional monetary policy to confront risks to US growth,” they wrote in a note to clients.
“Negative real interest rates, the prospect of further unconventional monetary policy in the US and Europe to confront uncertainties on the growth outlook, and heightened political tensions in the Middle East are all expected to underpin strong investment demand,” Morgan Stanley said.
Gartman Cuts Gold Position
Going against the trend, Dennis Gartman, Founder of the Gartman Letter told CNBC on Tuesday that he had cut his gold position – which is mainly yen-denominated – in half and that he would retain that position “for a while longer”.
“I don’t like being long of gold. I don’t like the gold bugs," he said referring to investors that are bullish on the commodity. "I’m not a believer that the world is coming to an end.”
“Nonetheless the trend in gold in all sorts of currencies, whether in dollar terms, euro terms, yen terms, has been…from the lower left to the upper right,” he conceded.
According to Weinberg, there are few reasons for gold to move higher right now.
The prospects of another economic slowdown and another financial crisis have eased, meaning there is less need for investors to seek protection in safe havens like gold, he said.
But in the longer term he believes the prospects for inflation are higher than many market participants expect.
“That’s why I would expect more of the demand coming into gold…during the year,” he said.
“At the moment there is no reason to rush into gold but I think that buying into dips will be a good game this year for bargain hunters in the summer. I do expect the prices to stay under pressure.”