- Gold prices are starting 2015 on solid footing, holding above the key psychological area of $1,200, but Deutsche Bank analysts remain bearish on the yellow metal and expect to see more strong declines.
In a Dec. 16 report, analysts said continued adjustments to U.S. interest rates, equity markets and currencies will be negative for gold in 2015. The bank is forecasting that in 2015, gold will see an average price of $1,225.
“If we value gold in real terms, relative to income, relative to income, relative to physical assets and relative to the U.S. equity market, then on average gold prices would need to fall towards US$905/oz to bring its valuation against these various indicators back towards it long run historical averages,” they said. “This illustrates to us that despite the powerful correction in gold prices that has occurred over the past 18 months, gold can still not be considered cheap or even close to fair value.”
The U.S. dollar will be the biggest drag on gold prices as markets adjust to the Federal Reserve normalizing interest rates and the European Central Bank, and the Bank of Japan, loosening their monetary policies. They are expecting the Federal Reserve to hike the fed funds rate in June.
Looking at EUR/USD, analysts said that they are expecting the cross to fall to 1.15 by the end of 2015, and with gold’s positive correlation with the euro, this could imply prices as low as $1,075 an ounce.
The analysts added the only thing that would change their current forecast would be for the U.S. economy to deteriorate, which would stop the Federal Reserve from hiking interest rates.
“However, the collapse in oil prices, if sustained, alongside recent signs of a more vigorous improvement in the U.S. labor market suggest this may prove to be an unlikely event risk next year,” they said.
Although Deutsch Bank is bearish on gold this year, they did note two factors that could be a life-line for gold in 2015. The first is would be global inflationary pressures as the ECB, BOJ and the People’s Bank of China expand their quantitative easing measures. But they added that there is only a loose correlation between central bank balance sheets and gold price trends.
The second source of support for gold would be central bank buying, but again they see this has having limited impact.
“Gold purchases by this community have slowed considerably over the past few years and since last year has been overwhelmed by the liquidation in gold ETF holdings,” they said.
Although the German bank is bearish on gold, they see more promise for silver and expect to see the gold:silver ratio to narrow in 2015. They explained that silver could benefit from increased industrial demand as the U.S. economy continues to gain momentum.