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Ooops! Just when everyone said gold must go higher
– immediately...!
MARKETS
are made of opinions, some better than others.
There are always plenty of opinions about gold. And right now they're clearly
making the market. Just not in the way you would think.
"There are too many bulls, including me," warned hedge-fund and
commodities legend Jim Rogers to CNBC overnight. He advises
caution if you're buying gold on this drop. Unlike most everyone else.
Swiss bank UBS last week kept its 2013 forecast for gold to average $1900 per
ounce – a rise of 14% from the 2012 average so far – while fellow
London market-maker Barclays now sees gold averaging $1815 next year, a snip
off its previous 2013 forecast.
Investment
bank Morgan Stanley takes "a bullish view", as does Bank of America. It thinks
gold will average $2,000 next year, rising to $2,400 in 2014. Whereas Capital
Economics (who have an opinion on pretty much anything and everything)
predict a peak of $2,200 in late-2013, some 10% above their previous
guesstimate.
Never mind that 2013 used to mean $2,500 per
ounce for the London-based consultancy. That was back in 2011. And like many
a gold bull right now, Capital Economics reckons the treatment of gold under
the world's banking rules – aka, Basel III – could "provide
an important psychological lift to the market."
How come? "European regulators appear increasingly willing to recognise gold as a high quality liquid asset,"
explains today's note from Julian Jessop, head of commodities research,
pointing to a much-discussed – but little understand – change in
banking regulation.
"Others
are likely to follow. Increased demand for gold to meet the tougher liquidity
requirements could then go some way towards mitigating what might otherwise
have been a large downside risk when the authorities do eventually take away
the exceptional liquidity they have provided to the banking system."
You
can find the same opinion – only with less understanding, subtlety or
caveating – pretty much across the internet.
Beware any "analyst" who says gold is about to become a "Tier
1" asset (that refers to capital reserves, not liquidity). Also beware
if they claim it's about to happen, like immediately, starting on New Year's
Day!
Because most of the developed world struggled to implementing Basel II
– the last set of agreed principles. Putting Basel III into place by
2013 is now an "ambition" most national regulators have delayed and
deferred well into the never-never. And gold's new status under those rules
is still very far from certain. It may perhaps be valued at 50% of its price
when regulators count up the liquid reserves a bank holds. Or it might yet
get carried at 100% of market-price, causing a headache for the beancounters as the price moves up (or down – shhhh!) minute by minute.
Still, the possible re-assessment of gold as "a high quality liquid
asset" would mark a significant step after 12 years of annual price
gains. It would mark gold's "growing use as collateral", as Capital
Economics say. That would mark a new stage in gold's return to the banking
system from hated, under-priced and un-holdable relic. Not dissimilar, perhaps to gold's return
as an investable asset for US citizens on New Year's Day 1975.
For more than three decades gold bullion had been illegal to own in the
United States. Gerald Ford's executive order to remove that block clearly
helped the long 1970s' bull market run on towards its big 1980 top. US savers
had already missed out on a five-fold gain. Now the wealthiest savings market
in the world could participate in the inflation-fuelled gold bull market at
last!
But ooops...
 
"Gold rose 600% in the 1970s," said Jim Rogers back in 2007.
"Then gold went down nearly every month for two years. Most people gave
up."
You can't blame investors who quit the gold market between 1975 and 1977. The
gold price fell very nearly in half after all. But that is simply "what
happens in bull markets," said Rogers. And between 1977 and 1980,
"gold went up another 850%."
Fast forward to end-2012, and "Gold is having a correction," said
Jim Rogers last night. "It's been correcting for 15-16 months now, which
is normal in my view, and it's possible that [the] correction is going to
continue for a while longer."
And just in time for the much-hyped entry of new commercial bank buyers, too.
Or so says this opinion.
Adrian Ash
Adrian
Ash is head of research at BullionVault – the
secure, low-cost gold and silver market for private investors online, where
you can buy gold and silver vaulted in Zurich for just 0.5% commission.
(c) BullionVault
2012
Please Note: This article is
to inform your thinking, not lead it. Only you can decide the best place for
your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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