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Europe On Its Heels, Gold Headed To $1,400/oz In 2015 – Capital Economics

By Sarah Benali of Kitco News
Friday January 30, 2014 2:37 PM


(Kitco News) - Although gold prices have retreated from mid-month gains, one UK-based research firm noted that the metal has managed to gain about 7% year-to-date, and it expects prices to be boosted further by uncertainty surrounding Europe.

“Whether or not Greece ultimately exits the euro, we expect the price of gold to be boosted further this year by the return of safe-haven demand as the country’s financial problems drag on,” said Julian Jessop, head of commodities research at Capital Economics.

On January 25, Greek radical leftwing Syriza party won the national elections, just two seats shy of a majority. Shortly after the election, the new prime minister, Alexis Tsipras, formed a coalition with the right wing Independent Greeks party, which gave the leader 162 seats in Greece's 300-seat legislature. Both parties aim at reforming austerity measures imposed by Europe and the International Monetary Fund.

“Overall, we continue to expect the gold price to recover further, to $1,400 per ounce, by end-2015,” he added.

Jessop said that although the response to Greece’s election results was subdued, the potential uncertainty resulting from the elections may continue to support gold prices.

“The sanguine response to the Syriza victory reflects confidence that the new government and the Troika will reach a mutually acceptable solution to Greece’s debt problems, the still-low probability attached by investors to Greek exit from the euro, and faith in the ECB’s ability to limit contagion. This all seems complacent to us,” he said.

Jessop highlights an investor sentiment survey done by Frankfurt-based firm Sentix, which showed that 24.3% of respondents expect the European Union to break up in the next year, with Greece leading the pack.

“While this proportion has risen from a low of 7.6% in July last year, it is still far short of the high of 73% recorded in July 2012. It is surely no coincidence that gold prices were then much higher too,” Jessop added.

Jessop noted that the resilience in gold prices, despite recent dollar strength, may spill over to other commodity markets as well.

“Nonetheless, the resilience of the gold price, despite the surge in the dollar, encourages us to believe that other commodities can also decouple from their traditional inverse relationships with the U.S. currency,” he said.

He added that gold should continue to benefit from “an extended period of low bond yields”, resulting from looser monetary policies implemented by central banks in response to lower oil prices.

Jessop said that it is also noteworthy to look at speculative positioning in U.S. markets, which he said suggested “Western investors are already regaining their appetite for gold.”

“Admittedly, these data appear to be a coincidentrather than a leadingindicator of prices. But they do show the recovery in investor demand is not limited to emerging economies and central banks.”

Source: Capital Economics, Chart 3 provided by Sentix

By Sarah Benali of Kitco News sbenali@kitco.com
Follow me on Twitter @SdBenali



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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