Gold seems to have started a new bull market and the gold price is near a four-month high. Silver is at its highest since October 2013. A report from Street Research say that Chinese monetary authorities may be planning to convert the yuan into a gold-backed international currency. Primarily to deliver the dollar its comeuppance.
Data from CFTC shows that large players like hedge funds and other portfolio managers boosted their long exposures by 31% as on February 18. Gold prices should rebound because of the shift in the market from QE to tapering and global investor perception regarding currency values.
Technical selling, dollar`s strength, the sustained rise in equity and the Fed`s taper is the primary factors that caused the most recent fall in gold. The chart below is a study of the gold triggers since 1970:
The correlations between the gold price and the country’s balance sheet have turned negative lately. Combined assets of the U.S Federal Reserve, the European Central Bank (ECB) and BOJ could reach somewhere between $8 – 9 trillion in 2014. The analysts warn it can stay there for a while.
Liquidity and currency perception can drive the gold price movements rather than traditional supply – demand analytics. Chinese demand and the likelihood that Indian restrictions on gold imports could be lifted are macro factors that can be positive on gold prices.
The analysts expect that Central Banks would be strong buyers of gold in the future too. The analysts observe a 98% correlation between the US public debt and gold prices. With federal debt projected to rise to World-War-II levels by 2038, gold prices could be headed much higher.
Mining companies have adjusted their business models to the new low price environment and it is expected that the mining companies will sustain the performance and profit from it in the future. Commodity experts say India is playing a key role in the gold price.
The forecasts for gold are an average about $1300 per oz in 2014 estimates Sterne Agee. Silver is forecast at $23 per oz. The gold can vary from high $1,450 and a low of $1,100, while silver can reach $25 per oz.
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