Gold is in a “bubble” after the best annual run in at least nine decades and will head into a so-called bear market as a stronger U.S. economy helps increase interest rates and cut bullion demand, Societe Generale SA (OTCMKTS:SCGLY) (EPA:GLE) said.
On 2 April, Societe Generale SA (OTCMKTS:SCGLY) (EPA:GLE) released special report “The end of the gold era” in which they forecast that gold would fall to $1375/oz by the end of 2013. The price at the time of publication was $1600/oz. Within two weeks of publication prices reached $1360/oz. So prices fell below their target, but simply faster than they had expected.
Reiterating bearish call on the Gold, the firm predicts today that the yellow metal will fall to $1,200/oz by the fourth quarter of this year.
Societe Generale’s view on Gold
SocGen believes that the dramatic gold sell-off in April, combined with the prospect of the Fed starting to taper its QE programme before year-end, has resulted in a paradigm shift in many investors’ attitude towards gold.
This is likely to result in continued large-scale gold ETF selling this year and next. ETF gold has averaged about 100 tonnes per month since the April sell-off. We expect continued ETF selling to exceed higher demand for jewellery/bars and coins. Therefore, they have revised lower our Q4 13 gold forecast to $1,200/oz.
SocGen doesn’t think that the reported very high gold production costs will prevent the gold price from trading down to $1,200/oz. And while production cost concerns may slow the price decline below $1,200/oz, this factor is unlikely to provide firm support until we get closer to $1,000/oz.
Societe Generale SA (OTCMKTS:SCGLY) (EPA:GLE) concluded report with the belief that the dramatic price drop in mid-April was the beginning of the deflation of a bubble. The gold price rally in the late 1970s turned out to be a bubble. They think this time is not much different & reiterate their sell recommendation on it and lower Q4 2013 forecast to $1,200/oz