The debate continues on whether gold is or isn’t a safe-haven.
But no one will dispute that gold prices are way up in the last decade. And no one will disagree that they are way down in the past few months.
So, is this the end of the gold bull market?
Not necessarily. According to Erste Group, precipitous drop-offs in gold prices are actually a normal element of the larger bull run.
“It seems that the months of correction are now coming to an end. When gold set a new all-time-high at USD 1,920 last year, it was traded three standard deviations above the 40-day line. Only twice before in the current bull market, i.e. in May 2006 and in March 2008, had gold been similarly overbought. Both times, significant corrections ensued. The following chart illustrates the fact that the drawdown of the current correction is of average size. The duration (blue bar), however, has been above-average.”
Photo: Erste Group
Erste thinks that the bullish catalysts remain for gold.
“The crucial factors indicating the continuation of the long-term upward trend have not changed. We regard the real interest rates as central argument in favour of the trend – both in the USA and the Eurozone they will remain negative for a while. And indeed they are negative in many big importer nations such as India, China, Turkey, and Vietnam. On top of this we expect the still fragile shape the financial markets are in, the increasing scepticism with regard to uncovered paper currencies, and the persistent government debt problem to continue supporting the gold price in the foreseeable future.
“We therefore stick to our positive outlook and in the long run expect the gold price to exceed its inflation-adjusted all-time-high of USD 2,300/ounce.”