‘Gold price to fall 60%’ – academic is latest to forecast that boom will become bust
The price of gold could fall 60 per cent, if history repeats itself. That’s the warning from a leading US academic. Mark Williams, author of ‘Uncontrolled Risk’ on the fall of Lehman Brothers, says the four-fold rise in the price of the precious metal over the past decade is set to go into reverse. The trading floor executive-turned-lecturer says the $300 an ounce drop in the price in the past month – following a peak of more than $1900 – marks a ‘fundamental market shift’.‘The last bull market for gold ended in 1980, when prices fell by 60 per cent,’ wrote Williams in today’s Financial Times. ‘For 20 years after, owning gold was dead money. In 2011, the bubble is popping again. This time, gold could drop to $700 an ounce, more than $1,000 below its peak.’
His comments come as experts hotly debate the next move.
The precious metal has attracted an enormous investment in the past few years with backers attracted to its supposed safe-haven status in troubled times. It is also perceived as offering protection from rising inflation. Some so-called ‘gold bugs’ have suggested the price could rise to anything from $2,000 to $6,000 an ounce.
But the price was caught up in a broad-based financial market rout in late September. Prices fell 20 per cent from the record $1,920.30. It was, however, still up 15 per cent on the start of the year, at today’s price of $1,660.
Williams, who teaches at Boston University’s School of Management, believes the boom in exchanged traded funds (ETFs), low-cost investments which aim to track an asset or index, has helped pushed up the price, swilling $70billon into gold.
‘For the first time, private investors own more gold than is held by all central banks,’ he said, adding that this flexibility will also mean more rapid declines.
He says the usual supports for gold are no longer working: ‘Global stock markets are volatile, central banks have not regained credibility, inflation is still a concern, and trust in the markets has not been restored. Yet gold continues to fall…
‘Gold bugs attribute these drops to profit taking, increased margin requirements, and a bull that is taking a short breather. But what if they are the early signs of a fundamental market shift?
‘If gold is falling in a weak economy, and investors are willing to own US dollars again, imagine how it will perform when the global economy eventually moves from chaos to prosperity, and more traditional investments – those that produce products, dividends and jobs – come back in fashion.
‘Gold has lost its shine.’
Analysts at Goldman Sachs, whose views on commodities are regarded as highly influential, today reiterated their 12-month gold price target of $1,860 an ounce: ‘As we expect gold prices will continue to be driven in large measure by the evolution of U.S. real interest rates and with our U.S. economic outlook pointing for continued low levels of U.S. real rates in 2012, we continue to recommend long trading positions.’
Also, broker Credit Suisse raised its 2012 gold price forecast to $1,850 an ounce, saying the metal, as a clear beneficiary of the uncertainty and dislocations in financial markets, has further upside with the crises set to continue.
His comments come as experts hotly debate the next move.
The precious metal has attracted an enormous investment in the past few years with backers attracted to its supposed safe-haven status in troubled times. It is also perceived as offering protection from rising inflation. Some so-called ‘gold bugs’ have suggested the price could rise to anything from $2,000 to $6,000 an ounce.
But the price was caught up in a broad-based financial market rout in late September. Prices fell 20 per cent from the record $1,920.30. It was, however, still up 15 per cent on the start of the year, at today’s price of $1,660.
Williams, who teaches at Boston University’s School of Management, believes the boom in exchanged traded funds (ETFs), low-cost investments which aim to track an asset or index, has helped pushed up the price, swilling $70billon into gold.
‘For the first time, private investors own more gold than is held by all central banks,’ he said, adding that this flexibility will also mean more rapid declines.
He says the usual supports for gold are no longer working: ‘Global stock markets are volatile, central banks have not regained credibility, inflation is still a concern, and trust in the markets has not been restored. Yet gold continues to fall…
‘Gold bugs attribute these drops to profit taking, increased margin requirements, and a bull that is taking a short breather. But what if they are the early signs of a fundamental market shift?
‘If gold is falling in a weak economy, and investors are willing to own US dollars again, imagine how it will perform when the global economy eventually moves from chaos to prosperity, and more traditional investments – those that produce products, dividends and jobs – come back in fashion.
‘Gold has lost its shine.’
Analysts at Goldman Sachs, whose views on commodities are regarded as highly influential, today reiterated their 12-month gold price target of $1,860 an ounce: ‘As we expect gold prices will continue to be driven in large measure by the evolution of U.S. real interest rates and with our U.S. economic outlook pointing for continued low levels of U.S. real rates in 2012, we continue to recommend long trading positions.’
Also, broker Credit Suisse raised its 2012 gold price forecast to $1,850 an ounce, saying the metal, as a clear beneficiary of the uncertainty and dislocations in financial markets, has further upside with the crises set to continue.
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