Of course, not everyone agrees that gold will remain at that level, or that it might be headed even lower after more than a decade of basically non-stop gains. In fact, one commodity analyst offers a diametrically opposing view on the matter. Bloomberg relays the fact that one Ronald Stoeferle (commodity analyst at Erste Group Bank AG) has declared that “the [yellow] metal is still “far away” from a mania and investors should own more gold. Gold will rise to $2,000 in 12 months. Every trend ends in euphoria and excess and that’s what’s going to lead us to $2,300 an ounce, which is the inflation-adjusted all-time high.” Well, there you go; evenly-sized $600-700+ risk/reward potential parameters in gold.
Confused as to which way to bet? You are not alone.
While arguing that some [core insurance] exposure to gold is, indeed, a prudent track for most investors (and we would certainly concur with that angle), the executive director of Swiss & Global Asset Management cautions that such investors better consider currency fluctuations into the asset allocation equation as returns in gold are subject to “erosion” if the metal position is not hedged against changes in cross-currency rates. For example, an un-hedged euro investor underperformed his or her hedged counterpart by 10% since the start of this year. An un-hedged gold investor is likeliest to suffer the effects of an adverse move between the US dollar and his or her home currency; this, as gold has been historically priced in dollars.
The situation was equally reduction-oriented (17%) in the net-length in silver positioning among the specs. Silver’s length fell by 670 tonnes and its short positions’ tally experienced a large jump. In fact, when it comes to silver, the general sentiment and the shaping up of the futures markets’ positioning basically underscore the white metal’s lack of support for current prices on both the fundamentals’ front as well as the technical one.
The analytical team at Standard Bank (SA) basically concludes that “the market has turned bearish on silver’s prospects.” The aforementioned Merv Burak technical snapshot places silver in the ‘bearish’ box on all three counts: short, medium, as well as long-term. That said, the shortened trading week might offer some perhaps overdue short-term ‘relief’ to recently battered metals specs.
Standard Bank’s team also remarks that “ahead of the ECB decision this Thursday, we could see heightened euro dollar volatility which in turn will see increased price movements in commodity markets.
“Precious metals, mostly gold and silver, will be particularly susceptible, given that a weaker dollar enhances their attractiveness as a safe-haven asset. The market largely anticipates a hike in rates which, given that this should support the euro, could benefit precious metals.”
To be fair, the reduction in bullish positions in precious metals was not unique to that niche; the CFTC reported that spec funds have also cut back their bets of a similar nature across the board in commodities, and to levels that are now at a one-year low. Apprehensions related to global growth (or the lack thereof to be more precise) has led such gamblers to scale back on net-long positions in 18 separate commodities by 15%.