Gold Bullion Forecast for 2013
Gold bullion has had a fairly volatile year in 2012. At the end of 2011, gold bullion sold off sharply, ending December at a weak point. A lot of this, I believe, was a result of hedge funds being forced to liquidate their positions. Investors in gold bullion should be aware of the flow of funds from institutional investors. Because of the huge amount of capital that institutions have, they can certainly have an outsized impact on any market, not just gold bullion.
Once a fund has liquidated its position, the selling ends and the underlying fundamentals take over. For 2012, we’ve seen further price appreciation for gold bullion beginning in August on anticipation for accelerated monetary policy stimulus (more money printing) from the Federal Reserve.
That is exactly what we got from the Federal Reserve, a very aggressive monetary policy initiative that has no end date. This type of monetary policy action is unprecedented for the Federal Reserve. As is so often the case, investors bought on the rumor and sold on the fact. Following the September announcement for the new monetary policy initiative, a third round of quantitative easing (QE3), gold bullion sold off with the rest of the market.
To be honest, this is to be expected, considering the large move in gold bullion. Nothing moves up in a straight line. Once the markets tested the $1,800 level, considering gold bullion moved up from approximately $1,550, some profit-taking was to be expected. The key question for me was: at what point would investors step back into the gold bullion market?
Chart courtesy of www.StockCharts.com
This one-year chart for the gold bullion market clearly shows that over the last couple of weeks, support has stepped in to accumulate more of this commodity. Two things to note: 1) the gold bullion market held above the 200-day moving average (MA); and 2) the strong move upward in early November, which is a very bullish sign, as it broke the mini-downtrend that was beginning to form.
The break below $1,700 was worrisome to many investors, as that was signaling that there was potentially further downside for gold bullion. To me, the massive rush back into gold bullion, taking it back above $1,700 in early November, is a sign that there is a lot more pent-up demand for gold bullion than supply at current levels.
But we’re not done yet with monetary policy moves for 2012. The Federal Reserve has one more meeting, on December 11–12, at which, I believe, the Federal Reserve will be initiating another monetary policy announcement for a new program to buy bonds.
The minutes of the Federal Reserve’s October 23–24 meeting indicate that “Operation Twist,” in which the Fed sells $45.0 billion a month in short-term bills to buy the equivalent amount of long-term bonds, is scheduled to end in December and will be replaced by a similar monetary policy initiative. (Source: “Fed Minutes Show Interest in Extending Bond-Buying Effort,” The New York Times, November 14, 2012.)
The Federal Reserve has already stated that it plans to keep easy monetary policy with short-term interest rates near zero through to 2015. This certainly is a positive support for gold bullion. In fact, I think that the additional monetary policy initiative might be a catalyst for gold bullion to move higher. In either case, it appears that there is substantial demand for gold bullion that I don’t see subsiding in 2013.
When you combine very easy monetary policy (meaning a lot of money printing) with a high level of demand, we should see gold bullion break the $1,800 level in 2013. In fact, I think close to $2,000 an ounce for gold bullion could potentially be seen in 2013. Gold bullion seems to be trading in ranges of approximately $250.00 an ounce. As long as support holds, once gold bullion exceeds $1,750, I believe the next approximate highpoint will be in the $2,000 area. If support fails, you will most likely see institutional hedge funds exiting gold bullion.