Peter Fertig, from QCR Quantitative Commodity Research Ltd, in Hainburg, which forecasts a gold price of between 1,150 and 1,375 US dollars, believes that the main risks to the price of gold are a strong US economy and a low US unemployment rate. This, together with more attractive prices and greater demand for jewelry from China, should be an incentive for investors to return to investing in gold and underpin a price recovery to $1300. In the long term, analysts expect demand for gold to increase due to strong growth in emerging markets and that the “wealth” channel will end up dominating demand for gold. If you sell your gold and invest your money in stocks, other fixed-income assets or real estate, you'll show a return.
However, what is striking is that the forecasts cover a wide range: the forecasts differ by up to 325 USD, which corresponds to about a quarter of the expected price. Over shorter periods of time, the inflation-adjusted price of gold fluctuates dramatically, making it a poor hedge against inflation in the short term. While the strength of the US dollar and weak demand for jewelry from countries such as India and China will put pressure on the price of gold, investor demand is expected to eventually cause the price of gold to rise. HSBC blamed the fall in prices for damaging investor confidence, which could take many months to restore.
On the contrary, the fundamentals of supply and demand and the historical dynamics of the end of the cycle pointed to an increase in gold prices. In this context, the Federal Reserve could make two unplanned rate hikes that could strengthen the dollar, with negative consequences for the price of gold. According to Michael Widmer, metal strategist at Bank of America Merrill Lynch, gold prices have maintained a limited range for several quarters after a multi-year uptick. We believe that there has been a change in recent months and that the conviction to hold gold has diminished rapidly.
Gold should continue to be sought as a safe haven if there is significant uncertainty about future interest rate levels. When the prices of stocks, bonds and real estate fall sharply, gold can maintain its value and even appreciate when nervous investors rush to buy.