-- Published: Wednesday, 19 August 2015 | Print | Disqus
By Peter Cooper
HSBC, the fourth-largest bank in the world, is predicting that the price of gold will be up 10 per cent by the end of this year and finish the year worth around $1,225 an ounce. Gold is down six per cent year-to-date.
The bank believes Goldman Sachs and other commentators are wrong to say gold will fall in price as interest rates go up. HSBC’s analysis of the data showed that the last four times that the Fed raised interest rates the gold price went up, not down.
Fed policy change?
The Federal Reserve is widely expected to raise rates later this year for the first time since 2006, albeit the Chinese equity crash, devaluation and trade slowdown might well scupper that plan anyway.
Goldman’s argument is that gold pays no interest or dividends, so when interest rates go up then investors will shift away from gold. ArabianMoney has pointed out that this is wrong before: in the late 1970s gold prices rose eight-fold amid very high interest rates.
That’s because gold is a hedge against inflation and higher interest rates are generally an indication that inflation is coming or already a problem.
All the same, inflation does not seem to be an imminent issue facing the global economy.Indeed, deflation is far more the worry of the moment with commodity prices, aside from gold and silver, in free fall and China devaluing its currency.
Then again precious metals are an excellent hedge against deflation and devaluation too, especially when their own price cycle has just bottomed out as it appears to have done this summer.
Gold has completed the classic 50 per cent bull market price retracement that also happened in 1975-6, and is preparing for the final stage of its bull market that started back in 2001.
That won’t be a 10 per cent price advance, although that might be the first sign of it by the end of the year, but a massive price spike. Think how the Chinese equities shot up recently before their crash. This is how markets behave.
Where will the gold price get to in 2016? $5,000+ as Martin Armstrong forecast in 2009 (click here), or $8,800 in a repeat of the 1976-80 spike?
Another early warning of this spike is the conversion of banks like HSBC to the idea of gold as an investment class. For gold output is falling and reserves are tightly held, and once retail investors like HSBC’s customers begin to seriously chase the price up then anything could happen.
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-- Published: Wednesday, 19 August 2015 | E-Mail | Print | Source: GoldSeek.com