By csinvesting. Originally published at ValueWalk.
forecasts-forecasts-everywhere (A good post on psychology)
So the gold price drops, so the gold forecasts drop. Some recent calls in order of bearishness:
- Deutsche Bank– fair value $785
- Morgan Stanley– $800 under worst case scenario, $1,190 average for 2015
- Claude Erb– fair value $825, will overshoot on downside to $350
- Bloomberg Survey– $984 average estimate by 31 Dec 2015
- Goldman Sachs– could fall below $1,000
- ABN Amro– $1,000 by 31 Dec 2015 and $800 by 31 Dec 2016
- OCBC– $1,050 by 31 Dec 2015
- Capital Economics– $1,050 by 30 Sep 2015, $1,200 by 31 Dec 2015
- UBS– $1,180 average price over second half of 2015
Towards the end of 2010 I (Bron Suchecki) started recording forecasts in a spreadsheet, as I noticed many analysts revised their forecasts frequently in response to moves in the gold price. By 2012 I had given up as it was a lot of work to make one point – that in general analysts were just following or projecting the trend.
The chart below shows the forecasts I accumulated from late 2010 to early 2012 (the clustering around July are yearly average forecasts) and I’ve added in the recent ones above.
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Continued….on recent gold “smash”
When the gold price has a big move the news agencies ring up traders for a comment. When I read these articles I’m looking for two things: why do traders think it happened and what do they think about gold going forward. Understanding these consensus narratives around gold is useful as they control large amounts of money and their views influence others.
Before I go on to discuss the comments, please note that narratives (see Ben Hunt) are not about truth, they are about what everyone thinks is the truth. For many finance professionals, the truth is less important (if at all) than being in the herd – most are not interested in the career risk of taking a position contra to the consensus view.
In terms of the why, here are some of the more sensible comments:
- Ross Norman: They choose the optimal moment in the early morning and when Japan was closed for a holiday to get the biggest bang for the buck. It was clearly ‘short’ traders using leverage to trigger (technical) stops” he said. The price later regained some of its ground, allegedly as the profiteers cashed in jackpot gains on options that they also had. “It was a trade within a trade”. (link)
- Marex Spectron: no coincidence that this happened in the quietest, thinnest period of the week … they deliberately want to move it in a big way (link)
- “Traders”: Gold also fell in the Chinese derivatives market, which, traders said, added to the impression of an orchestrated attempt to push the price down, triggering others to sell their positions. (link)
- Martin Armstrong: many rumors floating around from China off-loading because wrong storage figures were released, to a large spec investor who sold 6 tonnes and has taken a huge loss on a leveraged trade! (link)
- “Traders and Analysts”: attributed the massive move to high-frequency trading algorithms as well as stop-loss selling. (link)
- Societe Generale: It was just a bit of a bear raid and there was nobody on the other side to mop up the selling (link)
- Chuck Butler: maybe the gold sale on the SGE was “margin influenced,” which would mean that large investors use gold as collateral on stock trades, and as the Chinese stock market has dropped the margin calls have come in (link)
- “Market Participant”: The fact that it was done in Asian hours and in a loud, messy manner suggests it may be done by people not directly under European and US regulation (link)
The general view seems to be that it was a deliberate tactical move to push the price down, trigger stops, and try to get gold down to the technically important level of $1080, but with the real objective of making money on another derivative position.
On to the narratives around gold after this price smash. Here are a selection:
- Singapore-based trader: “We do see a lot of people in China selling gold to get fast cash to go back into the equity market” (link)
- Phillip Securities: “It looks like the end of an era for gold, China has been grappling with oversupply after importing a record volume in 2013.” (link)
- Societe Generale: “We have breached significant support levels, we know U.S. rate hikes are coming, there is no inflation and there is no catalyst to hold gold when other markets are doing better” (link)
- Momentum Holdings Ltd: “With low global inflation and an improving U.S. economy, I doubt we’ll see big economic shocks, which is not good for gold” (link)
- KBC Asset Management: “Gold is a hedge against everything that can go wrong. But at the moment it appears that not a lot is going wrong. We have an Iran deal, a
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