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The gold bull run: the beginning of the end?

According to recent research, gold prices posted their worst quarterly performance in more than four years in the final quarter of 2012, falling just over five per cent as more positive U.S.  economic data made prospects for further monetary easing uncertain. 
The gold bull run: the beginning of the end?

With the global economy tipped to recover in 2013, analysts are forecasting the beginning of the end for the gold bull run. 

According to recent research, gold prices posted their worst quarterly performance in more than four years in the final quarter of 2012, falling just over five per cent as more positive U.S.  economic data made prospects for further monetary easing uncertain. 

Jewelry demand in much of the world also weakened on sluggish economic conditions, including from major market India, though this is expected to recover. 

Tuesday, Deutsche Bank (NYSE:DB) joined a growing list of banks in cutting its outlook on gold prices for this year and next. 

The bank reduced its average gold forecast for this year by 12.1% to $1,856 a troy ounce and its 2014 forecast by 5% to $1,900/oz.

"From an investment perspective, our conviction for continued structural strength in the gold market is being tested," said Deutsche Bank analyst Daniel Brebner.

Deutsche Bank also slashed its outlook for silver. The bank cut its 2013 price outlook on the metal by 16.8% to $37/oz and its 2014 forecast by 5% to $38/oz.

HSBC too lowered its 2013 average gold price forecast to $1,760/oz from USD1,850/oz and left its 2014 forecasts of $1,775/oz unchanged.

"Gold prices dropped sharply in Q2 and Q3 2012 as markets scaled back expectations of a third round of quantitative easing (QE3) by the Federal Reserve. Gold was also undercut by a weaker EUR in Q2," HSBC said, adding that gold should still benefit and "retain a pronounced bullish posture" from US dollar weakness, ongoing central bank purchases and a likely recovery in EM demand. 

HSBC left its 2013, 2014 and long-term silver price forecasts unchanged at $32/oz, $28/oz and $25/oz respectively.  

The news follows Credit Suisse (NYSE:CS) last week lowering its 2013 and 2014 forecasts for gold prices. The bank slashed its forecast for the average gold price over 2013 by 5.4% to $1,740 per troy ounce from $1,840/oz, and also cut silver's corresponding forecast to $32.20/oz from $33.10/oz. 

The bank also lowered gold's 2014 price forecast to $1,720/oz from $1,750/oz, and trimmed silver's down to $31.30/oz from $31.40/oz.

“Gold and silver prices rallied strongly on two occasions during 2012 only to subsequently give back most of the gains,” said Credit Suisse analyst Tom Kendall.

“We think this may well be an equally frustrating year for investors in both metals, though the 2012 year-end selling appears to have been a little overdone and we forecast modest appreciation during the first nine months of this year.

“However, if our core macroeconomic scenario proves correct then that is likely to mark the beginning of the end of the bull market – we forecast a slow retreat in price in the fourth quarter and throughout 2014 as investor demand for defensive assets diminishes, and expect the decline to accelerate in 2015 as markets anticipate a first move up in US interest rates."

In 2012, the yellow metal failed time and again to pass its $1,800 an ounce upside target for the year, despite giant central bank moves in the U.S., which typically causes gold to rise due to its function as a hedge against inflation. 

Tuesday, gold for February delivery scored its first gain in four sessions, on signs of increasing demand from Asia. The Shanghai Gold Exchange reported a sharp rise in physical gold trading Monday, which comes less than five weeks ahead of the Chinese New Year. 

Gold for February delivery rose $15.90 an ounce, or 1%, to settle at $1,662.20 on the Comex division of the New York Mercantile Exchange.

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April 16 2013

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