With the world still awash in various quantitative easing, money printing and stimulus measures, the long-term picture for higher gold prices is certainly rosy; however, the short term has not shined as bright. Since October, the SPDR Gold Shares ETF
(NYSEARCA:GLD -- which represents gold bullion–has fallen by more than 7% and some analysts peg that it could fall even further in the upcoming months.
The Reason for the Declines
According to metal strategists at HSBC, the recent surge of upbeat global economic data has dulled gold’s safe-haven appeal. Across various developed and emerging economies, things seem to be finally moving in the right direction.
In the U.S, payrolls grew modestly in January and gains in the prior two months were bigger than initially reported. At the same time, various housing sector data seems to be supporting views that the economy’s sluggish recovery was on track. The trio of home prices, pending sales and construction activity all increased last year, while the number of existing houses for sale continued to drop. Finally, the resolution of the fiscal cliff drama provided impetus for investors to move back into equities and out of safe-haven assets like bonds, cash and gold.
Across the sea in Asia, China’s economy seems to have avoided a dreaded hard landing as its vast manufacturing sector underlined a brighter outlook for the economy. A state-backed economic think tank has forecasted that China will grow by 8% next year. That’s above government targets. Additionally, inflation in the nation has cooled and Beijing has once again taken steps to re-ignite growth in Asia’s Dragon. Newly elected officials in developed market Japan have also sparked talks of economic growth in the stalled nation.
While Europe remains debt ridden and austerity plagued, its manufacturing sector saw its best performance in roughly a year despite recent contractions. Although it still sits at disturbingly high levels, unemployment was lower than estimated for December and inflation unexpectedly fell. That provided some comfort to the region’s hard-pressed consumers and raised speculation of more help from the European Central Bank (ECB) via easing.
All in all, the global economy seems to be grinding forward. That fact has sapped much of gold’s safe haven appeal–along with its share price–in recent months.
The Golden Outlook for 2013
Given the new positive tailwinds propelling the global economy, many metals forecasters have recently started paring down their predictions for gold prices in the new year. Overall, analysts are less bullish than last year and the average price target for the metal has been cut by roughly 12%. Both Credit Suisse
(NYSE:CS) and Danske Bank
(PINK:DNSKY) -- two of the most accurate predictors of the precious metal–estimate that gold will average around $1,720 an ounce this year. That’s only slightly higher than current prices.
Some analysts have predicted that the recovery could actually send the precious metal lower–back down to the $1,400 to $1,500 mark–by the fourth quarter of this year. That is if the global economy really begins moving. However, given the continued stimulus measures enacted to get us to this point, longer termed investors in gold may still get the last laugh.
The Bottom Line
Though gold has climbed in recent years due to the shaky economy, it looks like its huge growth will be stalled in 2013. This could all change if something unforeseen has large negative effects on the markets, causing investors and traders to return to the golden safe haven.
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Editor's note: This article by Aaron Levitt was originally published on Commodity HQ.
No positions in stocks mentioned.