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Gold Price Not As Sensitive To ‘Calendar Events’ As Many Believe - Capital Economics

By Kitco News
Thursday February 19, 2015 4:19 PM

(Kitco News) -With Chinese markets closed in celebration of the Lunar New Year, some analysts are expecting to see lower gold prices as a result of weaker demand. However, one research firm is not convinced that will be the case.

In a research report published Thursday, economists at Capital Economics argued that while the time of year can impact demand for the yellow metal, the calendar has little impact on the price of the metal.

“In general, talk of an important seasonal pattern in the price of any asset should be viewed with suspicion, as it would imply that the market is so inefficient that some participants would be able to profit at the expense of others simply by following the calendar,” they said in the report.

The U.K.-based research firm gave three reasons as to why there is no strong seasonal pattern for the gold price, the first being that season drivers are already priced into the market. The second factor is that stockpiles in gold can arbitrage away any seasonal patterns in price and investment demand can smooth out any potential price swings.

The economists admit that some months are stronger than others, but these “calendar effects” are still small.

“Between 2000 and 2014, the gold price has risen by an average of [2.5]% in the strongest months,” they said. “Accordingly, the boost from seasonal factors in the best month might only be worth an additional 1-2% or so, or $12-25 per ounce at [a price] around $1,220.”

The economists noted that the effects from seasonal demand could be overwhelmed by other market drivers, such as shifting expectations of U.S. monetary policy or growing geopolitical tensions like a potential “Grexit.”

Capital Economics is bullish on gold in the long-term. They expect the price to hit $1,400 by the end of 2015.

They have said that gold could do well in the near-term as markets are currently under-pricing the risks association with Greece failing to negotiate a new bailout package. If Greece is unable to get additional funding by the end of the month, it could be forced to exit the eurozone.

By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C



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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