2008 Gold Price Prediction
So what about 2008?
In 2008, my minimum target is $925
based upon a continuation of the trends already in place and mentioned above.We could, however, see a spike to
between $975 and $1025
if, in addition,
1. The credit crisis escalates and the central banks are forced to inject substantially more "liquidity" into the financial system than anticipated; or
2. If tensions escalate to red alert status in the Middle East, or if a decline in U.S. presence in Iraq rekindles religious tensions, the bombings and violence in general (with the consequent effect on relations with Iran); or
3. Supply problems escalate in the physical gold market causing a gold crunch; or
4. If we get another major surprise like we did with the credit crisis in 2007 (Yes, something else could crawl from under the rock);
Note: There could be a sharp mid-year correction in the gold price, if we get a strong run-up from the $810 level in the early months of 2008. However, I believe, in the wake of such a run-up, support is likely to come in the current range or just below. Conversely, we could get an out-of-the-box price spike should we see three or more of the events mentioned above converge with their full ill-effect upon the economy and financial markets. These are indeed dangerous times, more dangerous than at any time since the gold bull market began.
Reflections in a golden eye I would be remiss as a commentator on the gold scene if I neglected to mention the rehabilitation gold has experienced in the public consciousness, not just in the United States but on a global basis. Gold is moving into the mainstream as an evergreen portfolio item, and this will prove to be a very important market development as we move into 2008. To some extent, this rehabilitation has been by default. Washington and Wall Street simultaneously have suffered declines in the public perception for well-known reasons - a situation from which gold has directly profited.
The real benefits to this change of thinking have yet to be realized, and are likely to play out over the long term. As investors make the connection between central bank money creation globally and its ultimate result, price inflation, so too they will make the connection between gold ownership and portfolio safety. It used to be that the same tone set in New York's gold market on a daily basis was the tone that carried through to overseas trading for the rest of the day. That scenario has changed dramatically. Now, it is not unusual to see gold begin a strong move in Asia overnight only to be carried over to the New York session.
This role reversal suggests a global undercurrent in the gold market that wasn't present even a year ago, and should be taken into consideration by all gold investors. There is now genuine worldwide competition for the available gold supply.Some might say I am pressing my luck by publishing a prediction for the 2008 gold market after calling the gold price in the three previous years, and I truly did consider, and mentioned to friends, clients and staff, that this year I might rest on my laurels. However, the trends which have pushed gold to the levels we have all enjoyed over the past several years are even more firmly in place now than they were at any time since 2004. Thus, I am emboldened and find myself in my traditional place this time of year. . . .out on the limb.
***As always, anyone who trades on these predictions does so at their own risk. There is as much chance I will be proven wrong as right. Those who are buying gold for long term asset preservation, though, pretty much view the prediction game for its entertainment value.
Last, consider this:Given the perspective of 100 years from now, analysts might very well find currency inflation the common source for the rise in both the Dow and gold during their respective up-cycles. If currency inflation could take the Dow from 800 to 11,750 during its bull market, why couldn't it take gold from its $270 starting point to $4050? If gold were to achieve a price of $4050, it will have matched the roughly 1500% appreciation of the stock market during its bull phase. That makes the current price an attractive entry level.
Source : Goldseek
GENERAL MARKET CONDITIONS
Last Friday we had mentioned that traders will either square off or go long in precious metals and energies, we were right. Volumes this week will fall and trading will be volatile. Window dressing by fund managers along with position building for the first quarter of 2008, particularly in the options markets will dictate the markets. There is nothing new to comment and it will be technical trade for the rest of the week.
Crude oil floating over $90 a barrel as the year comes to a close. Crude oil has given the best return in 2007, which will draw more and more investor going long in crude oil. I am skeptical about rise in crude oil prices after August 2008. The reason, 2008 is US elections year and higher energy prices will become a political issue which could result in speculators cutting some of the longs in crude oil ahead of the US elections. Unless there are major hurricanes in the Gulf of Mexico in 2008, we remain bearish on crude oil before US presidential elections. I did rather take a chance and buy some puts between July and November 2008.
Emerging market stocks like India had a great and memorable 2007. This will continue into 2008. However it will not be a one way traffic like 2007. There will be some fluctuations. India stock markets and India companies will benefit from interest rates cuts from other central banks as cost of funds decline. However the sectors which performed in 2007 may be the laggards in 2008. We prefer to buy interest rate sensitive sectors like Automobiles and others (apart from infrastructure) for 2008 as lower global interest rates and lower commodity prices will benefit them. Apart from interest rate sensitive stocks, agro - commodity stocks (apart from sugar) is also a good long term investment as higher prices are here to stay.
GOLD -- FEBRURY FUTURE
Gold has to break $825 for gains to $848, else it will fall to $808 and $798 once again.
NYMEX CRUDE OIL -- FUTURE
Crude oil needs to break $95 else it will fall to $90.50 and $88.90 once again. As long as crude oil floats over $90.50 downside will be limited.
GENERAL MARKET CONDITIONS
Year end profit taking and abating fears of a recession in US economy has resulted in US dollar gains and fall in crude oil prices and precious metals prices. Medium term to long term bullishness for precious metals as well as crude oil, medium term bearishness is there for the US dollar too. In the short term there could be more gains for the US dollar and pains for precious metals and base metals. These are all a part and parcel of year end closing. 2007 has been an exceptional year for every market and 2008 will be another dream year. Wheat prices reaching $10 a bushel, inflation is here to stay and gold's demand as an inflation hedge will remain.
2007 has been the year of mergers and acquisitions and leveraged buy outs (LBO's) at very high valuations. In 2008 if any of the M&A and LBO give negative returns to the investors, global stock markets will move into another round of bear rally which will be long lasting. I will be keeping a close watch on these stocks as valuations were on the higher end.
SILVER -- MARCH FUTURE
As long as silver holds $1338-$1354 zone in short term, downside will be limited. It needs to break $1422 to resume its weekly bullish zone.
NYMEX CRUDE OIL -- FUTURE
As long as crude oil holds $90-$90.40 downside will be limited and it will target $94-$95.50 once again. Falls below $90 then $87.40 is the target. Investor should sell April/May futures on rise with a price target of $78.
Source : Goldseek
GOLD SUPPORT
$781.30, $784.40, $790.20, $795.30
GOLD RESISTANCE
$804.70, $809.50, $812.30, $819.70
GENERAL MARKET CONDITIONS
Three things which so far has yet to happen in 2007, gold has yet to break $850, crude oil has yet to break $100 and euro/usd has yet to break 1.50. Gold and crude oil still have a chance to edge past these markets despite technical bearishness, while euro/usd over 1.50 in the next two weeks is highly unlikely. As far as metals markets are concerned, it is base metals which will be remembered than precious metals as they created historical highs in 2007 only to crash subsequently. It started off with copper, followed by nickel, zinc and lead. Fundamentally, I have never been a base metal bull and my reasoning is that if global growth is to slow down in 2008.
A slowdown in 2008 is getting factored in for base metal prices and when liquidity conditions improve (probably after the first fortnight of January, 2008) base metals will find buying interest. At the moment, in our view there are still huge longs in copper, zinc and lead at higher levels and retail investors are trying to average and get out of their investment in base metals. Once this is over, base metals will consolidate. Please remember that base metals are still way high over 2004 lows. So base metals are still in their multi-year bull cycle. Interest rate cuts by various central banks globally in the second half of 2008 should support base metals. US economy will grow very strongly in the second half of 2008 on lagging effects of interest rate cuts and a weaker currency while the European central bank should start their interest rate cuts after June 2008. Even the Indian central bank should cut interest rates by half a percent in 2008 as inflation falls below acceptable levels.
The volatility in the first fortnight of December, is just preparing traders for things to come in 2008. Day traders are having hell of time as higher volatility means more trading opportunities. Technically gold and silver are in a neutral to bearish zone while crude oil is in a neutral zone. Euro/usd has to break 1.4674 to be in bullish zone while failure to edge past this week will result in fall to 1.41. This is last trading week Christmas and trading volumes will fall from next week as some traders jet off for vacations.
GOLD
Double bottom has been formed at $776 and a double top at $818. Gold will trade in wider $790-$814 range for the day. A breakout is in the offing from the current trading range soon.
NYMEX CRUDE OIL
As long as crude oil holds $90-$90.40 downside will be limited and it will target $94-$95.50 once again. Falls below $90 then $87.40 is the target. Investor should sell April/May futures on rise with a price target of $78.
Source : Goldseek
Crude oil demand growth will jump by 2.1m barrels a day in 2008 as strong Middle East consumption will offset the US economic slowdown and the impact of record prices, the International Energy Agency (IEA) said on Friday.
The revised forecast is about 200,000 b/d higher than last month’s IEA estimate of a growth of 1.9m b/d and it is significantly higher than the Organisation of the Petroleum Exporting Countries’ (Opec) own calculations of growth of just 1.3m b/d.
Opec, the oil cartel which controls 40 per cent of the world’s oil supply, last week rejected an official increase in its production ceiling, warning that demand could be lower than forecast because the impact of the credit squeeze.
However, the IEA, the western countries’ energy watchdog, said that higher output from some Opec countries, such as Iraq, Angola and the United Arab Emirates, would boost the cartel’s real output in December in spite of its decision to leave its official production ceiling unchanged.
“Overall, winter prospects have clearly improved,” the IEA said, “but $90 a barrel oil makes clear that the market is still on edge and is unlikely to relax until the peak weather risks have subsided and a clear trend in Opec supplies is apparent.”
Crude oil prices in New York and London in early morning trading were higher. Nymex West Texas Intermediate crude oil was 48 cents up to $92.73 a barrel while ICE Brent crude oil jumped $1.28 to $93.40 a barrel.
Crude oil prices have been trading in a range of between $85 and almost $100 a barrel since October and hit an all-time high of $99.29 a barrel in late November. High oil prices coupled with rising food cost have boosted inflation around the world.
The IEA said that high oil prices were depressing only marginal demand growth in developed countries, such as the US or Germany. Consumption among rich countries will rise 1.3 per cent next year, it said.
However, in developing countries, the watchdog said that demand would grow 4 per cent in 2008 led by strong economic growth in China, the Middle East and India.
In addition, “most of the largest and fastest-growing emerging countries cap end-user prices, thus insulating consumers and fuelling strong oil demand growth,” the IEA said in its monthly oil report.
The jump in consumption in 2008 will force Opec to pump more than initially forecast or to draw down inventories as non-Opec supply is expected to grow by only 1m b/d. In spite of the gap between demand and non-Opec supply, next year’s increase will be an acceleration from 2007’s meagre growth of 0.5m b/d.
Crude oil and products inventories have already fallen below the 5-year average, the IEA said. In October, the inventories equalled 52.6 days of demand, down from 55 days during the spring and 54 days in the summer.
EXPECTED TRADING RANGE
GOLD FEBRUARY 08 -- $792.0 -- $823.00
I am riding on a “Dune Buggy” as far as movements in the markets are concerned. One day sharp rise, followed by a sharp fall only to recover the next day. This kind of movement has resulted in more and more traders becoming short term oriented and is preventing them from taking a medium term view. However the US dollar has been the catalyst for all the volatility. A weaker dollar results in higher crude oil prices, which in turn supports precious metals and vice-versa. There are still huge short positions in US dollar and positive news like sharp rise November US retail sales resulted in some of the US dollar shorts getting squared off and the subsequent effect on precious metals and energies. The sharp rise in PPI is also due to lower base effect which is continue to affect PPI prices in the first quarter of 2008 as crude oil prices were lower in the first quarter of 2007. If December retail sales perform like November markets will soon be reducing the possibility of a Fed rate cut in January also.
Technical picture gold is bullish. However gold can fall $30 and still maintain the bullish trend intact. However it a momentum markets technical trade is applicable only when key supports are tested. Silver is in the woods and a lower close today will alter the technical picture to short term bearish.
NYMEX CRUDE OIL -- FUTURE
Back to square one as it targets $100 once again. On the lower side as long as $90.40 holds, downside will be limited.
The expected surprise came a day after as the Fed, European Central Bank, Bank of England, Bank of Canada, and Swiss National Bank all released plans to provide extra liquidity to money markets, auctioning off loans with comparatively low interest rates to ease tension in global money markets. This is an acknowledgement that their economies are in tatter. Base metals and equities will benefit more out this move than precious metals and energies. Base metals have taken the maximum thrash due to year-end liquidity pressures and they should benefit most. The fall in base metals over the past two months suggests the quantum of speculative interest. Retail investors should learn a thing or two from the slide in base metals.
Nothing new to comment on precious metals and base metals as they are expected to remain firm on the back of a weaker US dollar and higher crude oil prices. Technical charts in precious metals and energies are yet to show bearish divergence. Higher gold prices will not result in lower demand.
As long as gold holds $807-$809 it will target $825 and $838. Only a consolidated fall below $807 will result in $802 and $790.70.
Nothing Official about precious metals and energies sharp rise after the Bank of England interest rate cut. I am more concerned about the plunge in base metals particularly lead, which fell nearly six percent. There was a technical breakdown in LME Lead 3 month, which resulted in the same closing at $2680. LME Lead 3 month has to hold $2356 else more losses will come. The fall prompted investors to exit lead and subsequent built in short positions. Technically lead is highly oversold but there could be more losses before a consolidation and next leg higher. Year to date returns in lead is still the highest among all the base metals at nearly forty percent so the fall in lead prices is nothing but year-end profit taking.
I will remember 2007 more for the fall in base metals and rise in crude oil prices. At the beginning of the year crude oil and copper prices plunged. Thereafter in towards the close of May Nickel prices plunged. From October and so far in December almost all the base metals fell but Zinc and Lead are the attractions. Base metals trading in new India is growing day by day. I find more and more investors preferring to trade in base metals in India than gold and silver, as they are a source of very high risk and very high return. Even I like to trade in base metals for intra day. I prefer gold and silver for investment purpose, which if invested at the right time gives maximum return. Base metals trading will only rise in India over the next few years. But once again high volatility in base metals is here to stay and one should determine his risk appetite before going long.
Only a break of $818.30 will result in gains to $835.50 and $855. On the lower side as long as $797.90 and $790.30 are holding downside will be limited.
NEW YORK (MarketWatch) -- Gold futures extended their decline on Thursday, coming under pressure amid falling crude-oil prices and firmness in the U.S. dollar.
Gold for February delivery dropped $9.70 at $794 an ounce on the New York Mercantile Exchange. Other metals prices also traded lower.
On Wednesday, gold futures dropped $3.90 to finish at $803.70.
"With both oil and the dollar beginning to reverse their trends as year-end profit taking emerges, it looks as if gold will continue to see pockets of pressure," said James Moore, an analyst at TheBullionDesk.com, in research note.
"However, we don't expect gold to drop significantly lower as scaled down buying emerges from the physical sector, while the sensitivity in the credit/sub-prime issues continues to draw investment demand," he said.
The dollar index, which tracks the performance of the greenback against a basket of other major currencies, rose 0.4% at 76.710.
"The U.S. dollar is firm on improved technicals and improved U.S. fundamentals that have damped speculation of a 50 basis point Fed rate cut next week," said analysts at Brown Brothers Harriman in a research note.
Crude-oil futures fell 78 cents to $86.71 a barrel in electronic trading on the Nymex. On Wednesday, crude-oil futures erased earlier gains and closed lower after a government report showed U.S. crude inventories slumped 8 million barrels to the lowest in nearly three years, but heating oil and gasoline inventories increased unexpectedly.
Also on Nymex on Thursday, March silver fell 25.50 cents at $14.205 an ounce, January platinum dropped $7.30 at $1,461 an ounce and March palladium declined $4.45 to $350 an ounce.
December copper edged down 2 cents at $2.9960 a pound.
Gold warehouse inventories declined by 30,159 troy ounces to stand at 7.4 million troy ounces as of late Wednesday, according to Nymex data.
Silver stockpiles fell by 57,664 troy ounces to 134 million troy ounces and copper supplies edged down 225 short tons to 17,743 short tons.
The gold price is set for a period of consolidation following profit taking and position squaring, while the state of credit markets remains important.
The recent correction in the gold price has been more a function of profit taking and position squaring than a function of the state of the credit markets. After testing $830 in the final week of October, gold then retreated towards $770 before bouncing slightly as speculative positions were closed. This was extended by selling in relation to the options markets when the November options went off the board, as there has been sizeable exposure at both $800 and $850. It is arguable therefore, that a lot of speculative froth has been blown off the market and that the ground is being laid for a recovery, but this may yet take a little while to develop. The prognosis is positive for the New Year, but with the year-end approaching there is a distinct possibility that there is more position cutting to be done. There is increasing resistance at $800, both on a psychological and technical basis.
Gold's most recent retreat coincided with a reduction in the CboE VIX uncertainty index over the last week of November from just less than 29 to just below 23, coupled with a very impressive rally in the equity markets. The S+P 500 and the Dow Jones both gained 5% in the last week of November, while the FTSE 100 and the Nikkei rallied by 4%. This is partly because Mr. Donald Kohn, the Vice-Chairman of the Federal Reserve, has strongly suggested that there will be another rate cut from the FOMC in December following the combined 75 point reduction that the Committee has put in place since late September. Dr. Kohn said in late November that recent turbulence in the markets might mean that the restriction on credit availability, both in the corporate sector and with respect to private individuals, might be greater than previously imagined and that the risks to economic growth had increased. The fed funds futures markets are now pricing in more than a 90% probability of another cut in rates on 11th December, taking the fed funds target rate to 4.25%.
These markets were then boosted further when Dr. Bernanke noted that the economic outlook had been "importantly affected" by the problems in the credit markets and that the economic data to be released in the early days of December might well contain the answer as to whether the FOMC should cut rates or not. He focused particularly on the November non-farm payroll figures, which are due for release on 7th December; the markets are looking for an increase of approximately 100,000.
He commented that the "fresh wave of investor concern has contributed in recent weeks to a decline in equity values, a widening of risk spreads for many credit products not only those related to housing and increased short-term funding pressures [and that] these developments have resulted in a further tightening in financial conditions, which has the potential to impose additional restraint on activity in housing markets and in other credit-sensitive sectors". He remains, however, concerned about inflation, citing food and energy prices and the low level of the dollar. Furthermore he noted that US household spending in recent weeks has been soft.
Dr. Bernanke took a neutral stance on the prognosis for the 11th December meeting, but the markets were prepared to take his comments as an indication that a cut might well be in the offing. It is arguable that the increase in equity values is not sustainable as there is still a clear investor aversion to risk, and this should benefit gold. There is a general consensus that there is still some way before the credit crunch has been resolved, although a senior official at the European Central Bank has suggested that the markets are pricing in a resolution by next spring. If the system has not recovered by then, therefore, gold is likely to be a major beneficiary as a hedge against financial risk. At the moment, however it looks as if the most likely beneficiary of the prevailing circumstances will be the bond markets as gold still has a strong speculative element to it and there is not much sign yet of any resurgence in activity in the price-elastic regional buying areas of the Middle East, Asia and the Indian Sub-continent. Recent figures form the CFTC combined with an analysis of open interest on COMEX suggests, however, that American commercial buyers are back in the market.
The state of the credit markets remain important with respect to gold, as it reasserts itself as hedge against risk. Without the return of jewellery and investor buyers at the grass roots level, however, any additional strength in the price is likely to be built on foundations of sand. The buyers will return once they are comfortable with the stability of the market. The most constructive near-term development, therefore, is a period of consolidation.
The Bank of England may come up with a surprise interest rate cut today while the European central bank is expected to continue with its neutral approach and is not expected to give any signals of an interest rate cut in the near future. We expect the Fed to cut discount rates by quarter of a percentage along with interest rates next week, which will start a new phase of US dollar bashing. If the Fed cuts discount rates by quarter of a percentage gold will easily edge past $850 and near $900 as long as $770 holds. Fed cuts will also be bullish for equities and base metals.
As far as base metals are concerned, their inability to edge higher has resulted in more shorts getting created than longs. 2008 is the year of interest rate cuts. Global most of the central banks apart from the Fed will cut interest rates whether in the first half or second half. Interest rate cuts will stimulate retail demand, which will be bullish for base metals. There are concerns that China may have a soft landing in 2008 which may not happen. The Olympics are in China next year. The German economy started picking up after the soccer world cup. Historically there are other instances as well. Chinese GDP is expected to grow over ten percent in 2008. Base metals demand is expected to remain firm and most of them will be able to near 2007 highs.
Gold was up $5.10 to $788.20 per ounce in New York yesterday and silver was up 9 cents to $14.07 per ounce. Gold rallied after the close in the New York Access Market and subsequently was flat in Asia before rallying again in trading in London to $794 per ounce at 1200 GMT.
Gold is trading at £384 GBP (up from £379) and €539 EUR (up from €534).
Gold is consolidating after its recent surge in price - gold rallied 28% from late August until early November and thus needed to consolidate. Such is the nature of bull markets with a continual series of two steps forward and then one step back. We are in another one step back phase which may continue to year end prior to the next stage in this secular gold bull market. However since 2001 gold has had a tendency to surprise to the upside and confound the bears and gold may confound again.
Importantly besides the obvious increasing macroeconomic and systemic risk leading to safe haven demand (more below), the serious supply/demand imbalance remains. Record-high gold prices are not resulting in increased global gold production. The world's major producers such as South Africa and Australia are still experiencing declines in production despite gold's bull market. Australia produced 61.7 tonnes, or about 2 million ounces, of gold in the three months to September 30, down about 1.7 per cent on the June quarter, according to Melbourne mining consultants Surbiton Associates Pty.
The European Central Bank said that it sold 42 tonnes of gold on Friday, in conformity with the central bank's gold agreement of which it is a signatory. That agreement limits combined annual sales by E.U. central banks to 500 tons a year until 2009. This is quite a small amount of gold and should be kept in perspective - considering that the gold ETF has attracted demand of more than 800 tonnes in the last year alone.
Global demand continues to increase significantly. Demand from the subcontinent of India alone dwarfs these gold sales. In 2006, India consumed 715.5 metric tonnes of gold -- about a fifth of global demand. This year, India's gold buying is on track to jump more than 50%. That easily offsets declines in the U.S., the second largest gold jewelry market.
China's demand for gold continues to surge. Bloomberg reports that China's demand for gold jewelry may increase by about 20 percent this year as rising personal incomes help it to race ahead of the U.S. as the world's second-biggest market, researcher GFMS Ltd. said today. Gold for use in jewelry in China jumped 24 percent from a year earlier to 221 metric tonnes in the first nine months.
As we go forward European central banks are likely to cut back on gold sales and may adopt the Federal Reserve's policy of not selling any gold reserves whatsover. The Federal Reserve remains the world's largest holder of gold (they are believed to hold some 8,400 tonnes.) With Russian, South American, Asian and Chinese central bank demand increasing it is likely that central banks will become net gold buyers again in the near future.
The credit crisis has gone way beyond a mere subprime crisis and is now a deepening property and credit crisis. UK commercial property is the latest property sector to be severely affected by falling prices. The FT reports that the shadow of the 1990s UK property crash is looming over the industry as deal volumes collapse to a third of their previous level and property funds take further drastic steps to prevent a liquidity crisis. Deutsche Bank was the latest fund manager to alarm the sector as it told investors in its RREEF UK core real estate funds – worth £1.3bn – they would have to wait up to a year to sell units. Triton, a £2.3bn property unit trust run by UBS, and Morley’s £1bn pooled pension property fund have also invoked 12-month waiting periods. The credit squeeze has further damaged sentiment in a sector which has already suffered consistent falls in property share prices since the new year. The crisis of confidence in unlisted UK property funds comes amid slumping deal volumes in the underlying market as buyers struggle to get their hands on debt.
The illiquidity of property is one of its greatest disadvantages especially in a property correction or crash. Conversely it is one of gold's great strengths, as the gold market is one of the most liquid marketplaces in the world. This dawning realisation will reinforce a global reappraisal of risk which will lead to increasing demand for gold.
Silver
Silver is trading at $14.20/24 at 1200 GMT.
Oil
World oil prices paused close to 90 dollars a barrel Tuesday on the eve of a crucial OPEC production meeting in Abu Dhabi. New York's main contract, light sweet crude for January delivery, eased six cents to 89.25 dollars per barrel. Brent North Sea crude for January slipped by 19 cents to 89.61 dollars.
The Organization of the Petroleum Exporting Countries (OPEC) was due to hold a production meeting in the United Arab Emirates capital on Wednesday. However, uncertainty hangs over the outcome, despite a prediction by analysts that the 13-nation cartel would keep production unchanged because of lower crude prices. Prices rebounded Monday in choppy trade as speculation grew that OPEC may keep the status quo.
