Business News Agency PRIME has published an article by Denis Kozhevnikov about forecast of peak price of gold:
At the beginning of 2016, no one even suggested a significant increase in the price of gold, but now, on the back ofBrexit, the most daring forecasts are made.
Since January, the price of the metal has increased by almost 30% and is trading around the levels of 1370 USD an ounce. Most of the growth (above 1300 dollars) occurred in June and was triggered by expectations first, and then by the result of the UK referendum. A similar growth dynamics was observed in the ETF funds, which for six months increased their gold reserves by more than 30% - up to 2 million tons, and the most active purchases took place in June.
After the residents of Albionchose to go their own way, the uncertainty factor has grown at times, and investors are moving away from risk to the safe haven, while parting with the EU could take several years.
BREXIT FACTOR
On June 23, a referendum was held in the UK on the country's EU membership. 51.9% votedfor the country's exit from the European Union. The referendum took place, the decision was made, but the actual output and all agreements will take a long time, respectively, and the effect of this decision will also be extended in time - it will excite the market, support the price of precious metals, spreading uncertainty about the future of the whole European community.
“The process of divorce of the UK and the European Union could take long time, and for how long - is not yet clear, - said Yevgeny Afanasyev, head of operations with precious metals of the Ural Bank for Reconstruction and Development (UBRD). - But while there is uncertainty in the market, this will have a positive impact on the value of the precious metal. I feel that the second half of 2016 is a good period for the gold,and the price of an asset will only growbefore the end of the year.”
Senior analyst of bank Obrazovaniye, Vitaly Manzhos, also believes that the most important impetus that will sustain the demand for gold in the medium term is the expected exit of the UK from the EU. He stressed that with this event will involve substantial shocks of the global financial system.
FRS FACTOR
It is worth noting that the most powerful driver that determined the dynamics of prices in the last few years, now faded. Moreover, before there was information about the referendum in the UK, most forecasts were based on a possible solution of the US Federal Reserve to change interest rates.
After the first long-awaited rate hike at the end of last year, at least three hikes were planned for 2016, but in fact –another hike didn’t happened, and at the present time, most experts do not expect a rate hike this year, even talking about the easing of monetary policy in the States.
UK Alfa Kapital analyst, Andrey Shenk, believes that Brexit greatly changed the mood of investors about future FRS actions. Before the referendum, more than 50% of market participants have been waiting for a rate hike this year, at least once, and after Brexit vote the likelihood of such a scenario has fallen to virtually zero. “On the contrary, the market began to price in the likelihood of a rate cut. This has led to a strong decline in yields at the long end of the curve of the US Treasury bonds, notes the analyst.
More recently, the assumptionswere made that the change in FRS rates can only happen in September, however, the market uncertainty makes the US Federal Reserve to make adjustments to the work of UBRD, Afanasyev adds. Now, most analysts agree that the interest rate is unlikely to be changed until the end of this year.
Sberbank CIB analysts in their review point out that the current price of gold reflects the extremely low probability for increasing of Fed rate in 2016-2017.
Igor Nuzhdin, principal analyst at Promsvyazbank, also adds that now, at the background of the growth of the risks associated with Brexit, gold - is one of the assets, which attracts investors.The resulting instability is likely to limit concerns about the growth of FRS rates. Against this background, speculative capital rushed into metal, as evidenced by its record inflow in ETF funds since the beginning of 2009.
BOLD PREDICTIONS
Since the beginning of 2016, the gold reserves in the ETF-funds increased by more than 500 tons to 1959 tons (as of July 1, according to Bloomberg). In June, the funds’ assets grew continuously. Thus,the outflows of 138 tons were registered in 2015. Against the backdrop of growth stocks in the funds, the price of the metal is actively strengthened. For six months of this year, the price has increased by $300 per ounce and is currently trading at 1370 USD/ounce.
If at the beginning of the year we were all restrained in the projections and anticipated that prices will start to recovery until the end of the year or early 2017, at the present time analysts and major investment banks have changed their forecasts. For example, Credit Suisse expects the price of gold to reach $1,500 an ounce in early 2017, and UBS puts the medium-term objective of 1,400 dollars.
Oksana Lukicheva,commodity markets analyst at Opening Broker, believes that the gold market is steadily moving in the growing trend. The third and the fourth quarter are usually growing, so her expectations are 1400-1600 dollars per ounce. She notes that the referendum in Britain is just a fact, and in front of - its consequences, which carry higher risks up to the EU separation.
“In addition, this fall there are elections in the United States, which are also a source of high-risk and increasing tensions in the world. August is a period of change and arrival of black swans.The main driver for gold, in my opinion, is the expectation of increasing inflation, the weakening of the US dollar and hopes for a new program of QE (quantitative easing) from all controllers at once,” adds Lukicheva.
According to Nuzhdin of Promsvyazbank, the price may well be fixed at around $1,400. At the same time there are suggestions that the end of 2016 - the middle of 2017 real Fed rates will be negative and this will give additional impetus to the growth of quotations up to 1,500 dollars an ounce and above.
Shenk from the Alfa Capital believes that the market is still waiting for the acceleration of dollar inflation, since the yield of TIPS (Treasury Inflation Protected Securities) went heavily into negative zone. “This is a strong signal for the purchase of gold since it is seen as an effective instrument of protection from negative real interest rates.If the US Federal Reserve will indeed pursue a softer policy and inflation risks begin to be implemented, the levels in 1,400 dollars would look quite real. In my view, we can see the movement even higher - up to $1,500 an ounce,” says Shenk.
Even technically, gold futures today show a strong medium-term upward movement, considers Manzhos from bank Obrazovaniye. “Apparently, these contracts will test the strength of the bar of 1,400 dollars in July. At the same time, they can go much higher on inertia of the incipient growth, and it is possible that during the third quarter, the price will reach 1500-1550 dollars per ounce. In this case from a technical point of view, gold futures only return to the middle part of their seven-year price range", he said.
Overall, the picture for gold is quite positive. “The devil is not so black as it is painted,” and Brexit is not so bad, like its consequences, which currently cannot be predicted.
Perhaps subsequent requests wave of referendums in other EU countries, which also want independence, and perhaps this is the beginning of the end for the EU. In any event, in the current quarter, the price of yellow metal has much more support factors, but there are no real factors for possible reversal of quotes. Tightening of the US Federal Reserve monetary policy could significantly affect the price of gold, but in today's market the situation is unlikely before the end of the year.
Denis Kozhevnikov