Gold may have surged to a new high today, but there is a big risk that when all this political uncertainty abates, its price is going to slide dramatically, according to Societe Generale’s David Wilson and Stephanie Aymes.
Physical demand for the commodity is high, but recently demand in India and the U.S. is down, as a result of seasonal factors and a decline in U.S. investor demand.
While the market is taking that demand decline in stride, there’s a threat that an improving situation in the Middle East could cause a dramatic price drop in the short-term.
From Societe Generale’s David Wilson and Stephanie Aymes:
These physical trading patterns suggest that there is a risk of short term price falls, possibly quite sharp, when political risk abates…
We remain friendly to gold for the medium term but this is partly a function of our expectation for currency movements and we are wary of the likelihood of price slippage in the coming weeks. As we will discuss further in our forthcoming Commodities Review, we believe that further upside is relatively limited.
That being said, gold’s short-term problems may be outweighed by its prolonged rise, depending on what sort of investor you are.
Photo: Societe Generale