Gold prices are heading up to $10,000 per ounce, in the view of an analyst at Societe Generale SA (PINK:SCGLY) (EPA:GLE). Albert Edwards issued a report to investors today explaining his firm’s view on gold. He said the Fed’s quantitative easing efforts have simply made the market more volatile. In fact, he believes that rapid inflation is on the horizon—but only after Americans lose confidence in their central bank, which hasn’t happened yet.
Edwards said the actions of central banks are going to keep pushing the world toward a global recession. He believes we’ve seen nominal U.S. gross domestic product growth peak in the current cycle. He also said all of these factors mean gold is a safe investment.
In the view of analysts at Societe Generale SA (PINK:SCGLY) (EPA:GLE), investing in gold is like making “a bet against central banks’ competency.” He said it’s a bet he’s still happy to take in light of “their track record.” Edwards believes that an imminent recession is more likely than an imminent takeoff, so the real gold yield will likely remain low.
In addition, Edwards referred to a note written by one of his colleagues in September 2011. According to that chart, the “fair value” for gold would now be more than $11,100 per ounce, which would be the price at which the U.S. monetary base would be fully gold-backed.
Societe Generale SA (PINK:SCGLY) (EPA:GLE) analysts said earlier this month that they believe gold prices this year will average around $1,500 per ounce but then gradually fall to $1,375 by the end of the year. That’s a 15 percent decrease, compared to Bloomberg’s consensus of $1,752 per ounce by the end of the year. They believe gold is “in bubble territory” because investors have pushed it up sharply over the last decade, especially amid concerns about the actions of central banks causing inflation.
Edwards pointed out in this week’s note that gold corrected 47 percent between 1974 and 1976 before it rose more than eight times to hit $887 per ounce in 1980. It’s to be expected that a steep correction in the price of gold comes before a parabolic move.
So in his view, this year may be the year of correction in gold prices before they skyrocket.