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LGT Gold Price Forecasts for 2013
Review of Q3 2012: Monetary Policy and the Gold Price
The price of gold consolidated in Q3, remaining mostly within a bandwidth between USD 1,550 and USD 1,650 from July to August. Gold profited at times from the anticipation of a third round of quantitative easing from the US Federal Reserve (QE3), and also from Mario Draghi’s announcement of intervention measures by the European Central Bank (ECB). Subsequent events have shown that gold market participants’ doggedly held expectations with regard to monetary policy have paid off in the form of a higher gold price, and this even earlier than we had expected. In his speech to the Jackson Hole Symposium at the end of August, Fed Chairman Ben Bernanke highlighted the positive effects the two previous monetary policy measures (QE1 and QE2) had had on the economy, as well as their impact on the current situation on the job market. However, he did not give any specific or additional details on the actual mechanisms by which this is taking place, and the timing for QE3 was also left open. Interpreting this as fresh hope, market participants subsequently began pricing in a higher likelihood for this third round of easing being implemented at the next meeting of the Open Market Committee (FOMC) on September 13, 2012. Gold was able to break through strong resistance points on the back of this, and settled close to USD 1,700 in the trading days that followed. On September 6, the gold price received further support from the European Central Bank, which announced an unlimited bond-buying program via the European Stability Mechanism (ESM). Under this program, governments will be able to seek assistance from the bailout fund subject to set conditions, and the ESM would then actively buy government bonds with maturities of up to three years. The intention is for these bond purchases to be completely neutralized and have no net impact on money supply. On September 13, following the two-day meeting of the FOMC, Ben Bernanke announced the next chapter of the monetary policy experiment. In the form of QE3, the Fed is seeking to counter weak economic activity with purchases of mortgage-backed securities (MBS) of some USD 40 billion a month. With these supporting moves, it is also aiming to bring down unemployment from the current rate of 8.2%. Surprisingly, the Fed stated that its bond purchases would be unlimited until the situation on the job market improves, and confirmed that it would leave its current zero interest rate policy unchanged through to mid-2015 at least. Conclusion: With these measures, the Federal Reserve has changed its reaction function to such an extent that, in its dual mandate, it is affording a higher weighting to unemployment and economic activity than to price stability. Given that reducing the level of unemployment is a long-term process, higher inflation – as measured by the consumer price index – will certainly be tolerated for a time, and the Fed will continue to hold off on countermoves even when economic activity starts to recover. The US central bank has thus implicitly raised the minimum price for gold. With this new monetary policy stance of QE3 for an unlimited period, it will also exert a long-term influence on the gold price. Gold has since been trading above the USD 1,750 mark, which is higher than the price target of USD 1,725 we had previously envisaged for Q4. As is appropriate in light of this changed monetary policy environment, we have updated our short-term price forecast and expect the positive price trend to continue over the coming year.
Metals Gold Silver Platinum Palladium Rhodium Copper Aluminium LGT Forecasts Gold Silver Platinum Palladium Key figures Avg. 2012 Avg. Q1 Avg. Q2 Avg. Q3 High 2012 Low 2012 All time high All time low Curr. Price 1,775.00 34.80 1,670.00 640.00 1,100.00 8,200.00 2,100.00 % YTD 14.60% 24.26% 19.60% 2.20% -21.50% 7.80% 3.88%
Q4 2012 Q1 2013 1,800.00 1,825.00 37.00 38.00 1,700.00 1,725.00 650.00 670.00 Gold 1,655.00 1,690.00 1,615.00 1,650.00 1,790.00 1,550.00 1,920.00 35.00 Silver 30.70 32.65 29.45 29.95 37.45 26.15 49.80 0.72
Source: Bloomberg, LGT CM
Gold price 2012
Source: LGT CM
US: Zero Interest Rate Policy to 2015
Source: LGT CM
LGT Capital Management Ltd., Schützenstrasse 6, CH-8808 Pfäffikon, Phone +41 55 415 92 11, Fax +41 55 415 94 80, E-mail email@example.com, Internet www.lgt.com. Please refer to our disclaimer on the last page for important legal information.
giving a figure of 259mt for the year as a whole. and now estimate a net volume of 550mt. LGT estimates blue Intact global gold fundamentals Global mine supply Jewelery fabrication demand Source: GFMS.900mt. Fax +41 55 415 94 80. Based on these aggregated figures for the global supply and demand for physical gold. In light of the current situation in South Africa. and we can therefore confirm that the framework and environment for the physical gold market remain intact. at 968mt. and a marginal change in overall supply at 1. Investment in physical gold bars: Demand in this category came in at 504mt in H1. with a net demand volume of 277mt.366mt of newly mined gold in H1. with ongoing mine worker strikes at various gold mines.880mt. Fears on the market that the physical gold market would be flooded with recycled gold proved to be unfounded. putting overall investment at around 1.514mt in H2. Schützenstrasse 6. the precious metals specialists at GFMS published their statistics for H1 2012. Other fabrication: The industry. For the year as a whole. Global mine production: On the price-inelastic supply side. Conclusion: We need make only marginal adjustments to our previously announced estimates for the second half of the year. Source: GFMS. Bayram Dincer 2/4 . The first half of the year was weak in terms of volumes.cm@lgt. We expect an increase of 920 mt in H2. the most important figure on the demand side is the jewelry fabrication category. We expect an increase in gold production to 1. Jewelry demand: As regards volumes. We expect to see stronger demand volumes in H2. That said.lgt. Please refer to our disclaimer on the last page for important legal information. we expect to see a drop in the supply volume from South Africa.2 October 2012 Global gold fundamentals: key supply & demand figures At the beginning of September.com. LGT estimates blue Source: GFMS.. CH-8808 Pfäffikon. We expect this stagnation in demand to continue in H2. fears of a further increase in gold transaction taxes have led to higher physical demand from Indian consumers and dealers in some instances. we have adjusted our mining supply figure to around 2. Our demand estimate for the year as a whole therefore remains unchanged at 750mt. the decline in jewelry demand is mostly connected to events in India. with demand at just 932mt. Implied investment: This category contains all gold transactions not covered by the demand categories above. with volumes at 374mt. the central banks accumulated 273mt of gold in the first half of the year. E-mail lgt. We see this as a positive development. We expect investment activity to be higher in H2 at 596mt. Scrap and recycled gold: Supply from this category came in at 768mt in H1. As we have reported several times already. We expect the central banks – and especially those from the emerging markets – to continue with their purchases in H2 as well.688 mt. Our estimate for global jewelry demand remains unchanged at 1. We estimate implied investment in H2 at 219mt. Phone +41 55 415 92 11. electronics and coins sub-sectors – which are brought together in this demand category – each saw consumption volumes stagnate. mining companies produced 1.com. LGT estimates blue LGT Capital Management Ltd. Official sector: On a net basis. LGT estimates blue Official sector demand Source: GFMS. with demand coming in at a total of 376mt in H1. Internet www.100mt. and for the immediate future we do not expect to see any increase in supply volumes that would have a significant impact on the price of gold. we can ascertain a positive interim result for the first half of 2012. This residual amount – which balances out the model – stood at just 40mt in H1. We are revising our forecast for the official sector as a net buyer.
In the scenario outlined above.a.1% on average. Furthermore. i. we recommend using any temporary price weakness as buying opportunities to increase strategic gold allocations. with the price of gold tending slightly higher through to the end of the year.0%. we see the continuation of the monetary policy experiment in the US as being a positive price-determining factor. A doubling of this figure would represent a critical level. Another key issue for gold investors will be the impending fiscal cliff in the US. Critics are already voicing initial doubts over the effectiveness of this program.e.800 Q1’ 2013 USD 1. Please refer to our disclaimer on the last page for important legal information. a new price regime with gold prices above USD 1.825 Q2’ 2013 USD 1. The price of gold should also profit from this heightened uncertainty. The current rate is 8. A simple example highlights our concerns. Phone +41 55 415 92 11. The unlimited quantitative easing program that has been announced. The fears that this increase in money supply could result in a phase of higher inflation rates in excess of 2% p.com. With a fully functioning transmission mechanism. because in our opinion this third monetary policy move has implicitly paved the way for additional measures. It is questionable whether the measures implemented will actually bring about this desired result.. market participants will be focusing their attention on the upcoming US presidential election.823 billion would be further inflated. Internet www. Bayram Dincer 3/4 . we do not expect any new nominal record prices above USD 1.950 Source: LGT CM LGT Capital Management Ltd. this expansion in central bank balance sheets would have an inflationary impact in the real economy. In addition to the Federal Reserve. with a whole series of tax increases and austerity measures set to enter into force automatically in January 2013. CH-8808 Pfäffikon. In our baseline scenario. around two percentage points higher than the long-term norm envisaged by the members of the FOMC. numerous other central banks are seeking to stimulate economic activity via monetary policy.lgt. the Fed’s current balance sheet of USD 2. As we have argued several times already. the fundamental environment for the global physical gold market remains intact. That said. Looking at the long term. tied as it is to full employment. are justified.com. Fax +41 55 415 94 80. Schützenstrasse 6. is a long-term structural process. the currencies involved would be devalued. and accordingly its future success. we expect a consolidation phase over the short term in Q4.900 would be realistic only from next year onwards.925 before the end of the year. Investors therefore believe it is probable that we will see yet further unorthodox monetary policy decisions. US Unemployment 1990-2012 Source: LGT CM US GDP QoQ Source: LGT CM US Fed asset balance sheet Source: LGT CM Investments and average gold price LGT Gold Price Forecast to 2013: Q4’ 2012 USD 1.2 October 2012 Outlook: monetary policy and LGT’s gold price forecast In the short term. Let us optimistically assume that the monthly USD 40 billion purchases of MBSs lower the unemployment rate by 0. E-mail lgt. The result after 22 months (around Q3 2014) and USD 880 billion in bond purchases would then be an unemployment rate of around 6. We do have some misgivings here. We remain of the opinion that both the traditional and macroeconomic arguments in favor of gold investments next year point to an even higher gold price.800. We therefore do not expect to see any noteworthy changes in the market fundamentals over the coming year that would have a negative impact on the price of gold. We have made a slight upward correction in LGT’s gold price forecast for Q4 to USD 1. Accordingly.0%.850 Q3’ 2013 USD 1.900 Q4’ 2013 USD 1.cm@lgt. gold thus offers investors an opportunity for diversification. The long-term average US unemployment rate from 1990 to 2012 was 6.2%. In our view. With its qualities as a stable real asset and as an alternative currency.
which may be incurred through the use of this publication.cm@lgt. Once published.com).lgt. Internet www. Phone +41 55 415 92 11. indirect or consequential. CH-8808 Pfäffikon. Datastream (http://thomsonreuters. The risk of price and foreign currency losses and of fluctuations in return as a result of unfavourable exchange rate movements cannot be ruled out. Investors should be aware that market conditions can change and the value of investments can fall as well as rise. Fax +41 55 415 94 80. LGT Capital Management (www.bloomberg.lgt. It is recommended that advice be obtained from a qualified expert. The securities and rights mentioned in this document may not be purchased or held by investors or for investors domiciled in the USA and/or with US citizenship. therefore. complete and up to date.com. E-mail lgt. Country-specific important information General Disclaimer We disclaim without qualification all liability for any loss or damage of any kind. foreign currency restrictions or foreign exchange controls and any other aspects that are of relevance prior to any decision to subscribe to. or other source as stated Risks Source of data and forecasts Germany: This document is intended solely for sophisticated investors. solicitation of an offer. whether direct. LGT Capital Management Ltd. or enter into any other transaction in relation to same.IMPORTANT INFORMATION This document is intended solely for the recipient and may not be duplicated. information shall not be understood as implying that no change has taken place since its publication or that it is still up to date. own. It is up to potential investors to obtain comprehensive information and appropriate advice in their home country. This publication is not intended for persons subject to legislation that prohibits its distribution or makes its distribution contingent upon an approval..com). The information in this publication does not constitute an aid for decision-making in relation to financial. 4/4 . tax or other consulting matters. However. Positive performance in the past is therefore no guarantee of positive performance in the future. There is a possibility that investors will not recover the full amount they initially invested. nor may such securities and rights be transferred to them. Data and forecasts are sourced from Bloomberg (www. Any person coming into possession of this publication shall therefore be obliged to find out about any restrictions that may apply and to comply with them. we cannot provide any undertaking or guarantee as to it being correct. purchase. nor should any investment or other decisions be made on the basis of this information alone. The circumstances and principles to which the information contained in this publication relates may change at any time. exchange or redeem such investments. This publication is for your information only and is not intended as an offer. country of residence or country of domicile about the applicable legal requirements and any tax consequences.com. Its content has been prepared by our staff and is based on sources of information we consider to be reliable. legal. distributed or published either in electronic or any other form without the prior written consent of LGT Capital Management AG. public advertisement or recommendation to buy or sell any investment or other specific product. Schützenstrasse 6. Forecasts are not a reliable indicator of future value developments.com).
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