Medium-term gold price forecasts “cautious”: RCR

Gold has stood head and shoulders above other major asset classes, appreciating by 49 per cent while equity markets, the oil price and copper price, just to name a few, are still in negative territory over that period.
“It’s not easy predicting the gold price when it is regularly breaching all-time highs, driven by crisis related fear,” said RCR Senior Gold Analyst Dr Tony Parry.
“We got it wrong in our last review (March quarter) when we predicted gold would trend back below US$1,100/ounce. Although we correctly forecast US dollar strength, we did not pick the extent to which European fears have spooked the market.
“However, looking at the fundamentals we are cautious on the medium term outlook, and are forecasting an average price of US$1,175/oz for the balance of 2010. Gold as an investment has been head and shoulders above equities and commodities in the last two and a half years, but we may have seen the peak in the precious metal’s golden years,” said Parry.
From January 1st, 2008 to June 30th, 2010, gold was up 50 per cent, while equity markets and other commodities such as copper and oil are still showing net losses.
In the year to June 30th, 2010, gold again out-performed - up by 34 per cent.
RCR said the fundamentals for gold look a “bit precarious” and that gold needs “crisis driven fear” to resume upwards momentum.
“We are moderately bearish on gold and expect trading mostly in the US$1,150/oz to US$1,200 oz band for the balance of 2010 (average of US$1,175/oz)” the report stated.
The report showed that gold shares have strongly outperformed most other market sectors, but the gains through holding the physical metal have outstripped gold share gains.
In the 12 months to June 30th, 2010, with gold up 34 per cent, the Australian gold index was up by 30 per cent, Canadian gold share index up by 22 per cent and the South Africans up by only 11 per cent. In that period, world equities (Morgan Stanley World Index) were up by 8 per cent.
According to RCR, the junior exploration and development gold companies have generally outperformed majors during the second half of 2009, but have underperformed in the last six months.
In the three months to June 30th, 2010, Australian gold shares significantly underperformed Canadian and South African gold, due to concerns over the Resource Super Profits Tax proposal.
“With gold companies insulated from the new minerals tax, the sector looks oversold,” the report stated.