HSBC cuts its gold predictions for this year and next

TradingPub Admin | March 25, 2013

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Major financial services institution HSBC recently cut its forecasts for the price of gold for 2013 and 2014, citing weak performance that the metal had at the start of this year and also speculation that the Federal Reserve will choose to stop its existing bond-purchasing monetary stimulus policies in the near future. 

Lowered forecasts
HSBC announced that it was lowering its 2013 estimate for the average price of the metal to $1,700 per ounce, which represents a 3.4 percent decrease from its previous projection, according to The Wall Street Journal.

The 2014 price forecast of the major financial services firm was changed to $1,720 an ounce, which represents a 3.1 percent reduction, the media outlet reports. HSBC most recently predicted that the metal would average $1,760 per ounce in 2013 and $1,775 in 2014, according to Reuters. 

Plunging gold prices
The price of the precious metal had plunged 4 percent in 2013 year to date at the time of report on March 18, according to the news source. Gold has declined in value for five consecutive months. Widespread beliefs that the central bank will limit its existing use of quantitative easing to stimulate the economy have been blamed for the lackluster performance of the metal in the recent past. 

Future gains
HSBC analyst James Steel said that he expects the market for the precious metal to improve in the near future, calling it "a short-term phenomenon," and writing that "we remain bullish on gold," The Wall Street Journal reports. 

Steel cited various factors that could serve to push the price of gold higher, including jurisdictions devaluing their currencies, growing concerns about inflation and also more aggressive stimulus policies of central banks, according to the news source. 

"We slightly trim our average price forecasts for this year to take into account weakness year-to-date but nevertheless expect a recovery in prices from current levels as the year continues," he stated. 

Another factor that was cited in the HSBC report as potentially pushing gold higher was activity in exchange-traded funds (ETFs), as the major financial services institution wrote that "further ETF or Comex liquidations could put additional pressure on gold prices." 

The report added that "that said, we believe the bulk of ETF investors have a proven buy-and-hold mentality and are content to hold onto their positions." 

Central bank stimulus
Significant speculation has grown recently around the future stimulus actions of the central bank. The Federal Reserve has been purchasing $85 billion worth of debt-based securities every month, and Chairman Ben Bernanke has stated that it will maintain these policies until the labor market has been improved substantially. 

Bernanke held a press conference on March 20, 2013, after the The Federal Open Market Committee held a two-day meeting. He noted that the predictions provided by the 19 members taking part in policy discussions were for the jobless rate to gradually decline in the next few years, falling to 7.3 and 7.5 percent during the last quarter 2013 and then to between 6.0 and 6.5 percent in the final three months of 2015. 

He noted that while he thinks that the labor market is making progress, the nation's unemployment rate is currently at 7.7 percent, which he referred to as "elevated" in his report. He said that the current program of spending $85 billion per month could be altered in both volume of purchases and the composition of securities that are bought, according to The Associated Press. 

The HSBC report noted the impact that this continued stimulus will likely have on gold prices, stating that "accommodative monetary policy has been a mainstay of the gold rally, and until that policy changes, we believe the bull market will remain intact.," Reuters reports. 

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