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Sat 29 Jun 2013 01:23 PM

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How low can gold go?

Anil Bhoyrul on the outlook for commodities and the role of the new emir in Qatar

How low can gold go?

Don’t worry, I promise I am not going to make any predictions on the future price of gold. I don’t need to be reminded that I have been spectacularly wrong about this in the past.

Two years ago, I had lunch with eight “experts” and between us, we reckoned gold was without any doubt the greatest investment you could possibly make. The only question was how quickly the yellow metal was going to get to $3,000 an ounce. Yep, we were all - without exception - spectacularly wrong.

How come? First it’s worth analysing what’s happening today. As I write this, gold is trading at $1,238 an ounce. Compare that to the price of $1,790 back in October last year, and over $1,900 in 2011. Morgan Stanley has put a $1,313 price on gold for the end of 2014, which is 16 percent less than its previous forecast. Goldman Sachs is even more gloomy, suggesting it will dive to $1,050.

Things look even worse for silver, now trading at $18.55, with Morgan Stanley forecasting just $21.01 for end of 2014.

The reasons are many: the likely reduction of US Federal Reserve monetary stimulus, or even the end of quantitative easing in the US. A strengthening US dollar. Rising US bond yields. Possibly rising interest rates. What all these have in common is a general and fairly strong uptake in the economy (going back to our infamous “experts” lunch, we all assumed the recovery would take much longer, and worked on the general rule of thumb, which is bad economy means a rising gold price, and a good economy means a worsening gold price).

The outlook is even worse for mining companies such as Barrick Gold, Kinross Gold and Goldcorp, which have all gone from stock market darlings to stock market pariahs in a matter of months.

Where will it all end? My worry (and I am really trying hard not to make a forecast) is that if Goldman Sachs is going as low as $1,050, this is dangerously close to the $1,000 barrier. Two years ago, I was willing gold to cross $2,000, convinced that once it did, momentum would soon take it to $3,000. The same momentum could apply if it dips below $1,000. And that really would be a disaster.

Qatar’s new leader must follow in his father’s footsteps

He’s 33. He supports Manchester United. He studied at Sandhurst. And last week, Sheikh Tamim bin Hamad Al Thani also became one of the world’s most powerful men, as the new emir of Qatar after his 61-year-old father abdicated.

From everyone I have spoken to in Qatar, the outgoing Sheikh Hamad bin Khalifa Al Thani has been nothing short of an incredible success.

Back in 1995, when Sheikh Hamad bin Khalifa Al Thani came to power, not many people outside the country had even heard of Qatar. Today it is one of the richest countries in the world, it is a huge player on the global diplomatic stage, and has even managed to win the rights for the 2022 World Cup.

The tiny Gulf state has also been transformed into a global financial hub, built one of the world’s great airlines, and has snapped up some of the planet’s most prized assets.

If the new emir can achieve even half that, he will be a huge, huge, success.

Anil Bhoyrul is the Editorial Director of Arabian Business.

Arabian Business: why we're going behind a paywall

Neil 7 years ago

But is gold near a bottom, is this a time to buy? What would be the bottom? 1000, 500, 200?
The central banks of many countries are scooping up gold...why? What do they know...possibly nothing if you consider what the UK did but hey....

procan 7 years ago

Buy Buy its on sale . Plenty of it in Canada, lots for all. Are Russian parteners also have plenty.