Over the last 20-years, gold has shown zero correlation with stocks and bonds, and had therefore become a favourite in terms of diversifying the portfolio, according to Societe Generale.
But SocGen analysts Alain Bokobza and Roland Kaloyan think “The Gold Rush Is Over”.
Gold is well off it’s 52-week high of $1,802. And the analysts expects gold to fall 15 per cent from its spot price to $1,375 per ounce by year end. This is more bearish than the consensus view which is 30 per cent above SocGen’s, with a forecast of $1,750 per ounce.
In a report published earlier this year, the analysts wrote that they expect gold prices to fall for four key reasons.
1. Stronger U.S. dollar – Gold prices have shown a 75 per cent correlation with the USD trade-weighted index. And SocGen analysts expect the dollar to strengthen by the end of the year on stronger housing data, job data, and recent talk about winding down QE even though there is no specific date yet.
2. Higher real interest rates – “There are many “empty” bubbles in the top left area of the chart but that other areas are full of “blue” bubbles (i.e. rising Gold prices). So during periods of negative real rates OR US Dollar weakening, Gold prices have systematically increased.”
3. Outflows from precious metal Exchange traded products (ETP) – In recent months gold inflows began to decelerate and in January we saw outflows.
4. Hedge funds are reducing their net long positions – “Even if hedge fund managers remain net long on Gold, they have significantly reduced their positions since last summer.”
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