Gold Dips Its Toe Below $1,200

COMEX gold futures touched a low of $1,196.10 yesterday, before climbing back up to just above $1,200. As the gold price heads for its worst quarter since 1968, many wonder how much lower it can go. With $1,200 originally touted as the ultimate low, numbers such as $1,100 and $1,000 are also being touted around.

Yesterday’s fall to below $1,200 dollars was in part thanks to a speech given by Fed New York President Bob Dudley who agreed that tapering is likely to be a part of the Fed’s plans later this year. He did also iterate, however, that the decisions made by the Fed could not always be planned but were instead determined by economic data. Given the apparent strength of the US’s recovery at the moment it seems likely that many saw Dudley’s comments as a go-ahead for QE tapering.

However, many are forgetting that Richmond Fed President Jeffrey Lacker said on Wednesday that he ‘expects a couple more years of sluggish growth’ and isn’t expecting to reduce the balance sheet any time soon.

In Gold We Trust
In some positive news, the 2013 In Gold We Trust report was released yesterday. Written by Ronald Stoeferle of Incrementum AG, the report forecasts a 12-month target of $1,480 an ounce and says ‘we remain firmly of the opinion that the fundamental argument in favour of gold remains intact” …There exists no back-test for the current financial era,” The firm does acknowledge that gold has been through ‘massive technical damage’ but that QE tapering is not likely to be as straightforward as some would have us imagine.

Goldman Sachs yesterday wrote that they expect mine output to decline now that the price of gold has touched below $1,200. Many considering the cost of gold mining forget that he rising costs are a clear indication of inflation, one of the reasons to invest in gold.

Will silver shine?

So far this year silver has taken just as much of a beating as gold has. However some analysts believe that the precious industrial metal will be the one shining brighter by the end of the year. Currently the gold silver ratio is 63:1, significantly lower than last year when it hovered around 90:1. UBS has revised down its 2013 and 2014 average forecasts for silver but have left the 2015 outlook unchanged, whilst increasing its 2016 outlook to $25 from $19.

“Silver is bound to suffer along with gold as Fed asset purchases are scaled back, and potentially even halted next year,” said UBS analyst Joni Teves in comments to Kitco “But as such an outcome would only emerge if economic conditions have picked up sufficiently, some of the blow to silver would be offset by an increasingly positive outlook for industrial demand. This dynamic is certainly at the back of investors’ minds, and is quite clearly seen in the ETF space.”

Several banks and analysts have reissued gold price forecasts this week, mainly being readjusted downwards. However in the immediate future, not all predictions are bad, in the Bloomberg survey of analysts, the results were split between those who are bullish on gold over the next weak and those who are convinced the price will head lower. This is unsurprising given the data due next week when we need to look out for the U.S. and China manufacturing data, the E-17 unemployment rate on 1 July, the ECB’s rate decision as well as the U.S. June non-farm payrolls and unemployment rate at the end of the week.