On November 20, Edison issued a report predicting gold would reach $2070/oz by 2020 – based on technical analysis of historic chart patterns and inflation estimates, among other things.
 
While gold is certainly the safe haven for investors, its behaviour this year has been anything but a reflection of its popular status, plunging $200/oz in two trading sessions in April.
 
Still, Edison was resolute.
 
“Given the extent of quantitative easing to date, Edison calculates a long-term US dollar inflation rate of 10.7% (discounting a future, sharp reduction in the monetary base), under which circumstances it forecasts the price of gold rising to $1642/oz in 2015 and $2070/oz by 2020 if real interest rates remain negative,” the report said.
 
“By contrast, a restoration of positive real interest rates would depress the price of gold, and inflation, such that Edison calculates a price of $1604 in 2015 and $1804/oz in 2020.”
 
The key to gold’s prospects, Edison insisted, would be the interplay between interest rates and inflation. As its report was being written, the market was narrowly focused on the possibility of the US Federal Reserve’s tapering of QE3 and the assumption that this was bad for the gold price.
 
“This report, by contrast, argues that the price of gold is already at a discount to that implied, given the implicit relationship between the two, by the expansion of the US monetary base and that, far from tapering causing the gold price to fall, it will merely cause it to rise less quickly,” Edison said.
 
However, binary options trading platform Banc De Binary’s investors has been divided about the direction of gold’s value in the second half of 2013 so far.
 
“On the one hand, bullish investors are concerned about the extent of monetary stimulus worldwide and the potential for a currency crisis as governments attempt to reduce debt and boost the economy, so they are turning to gold which is a safe haven asset,” Banc de Binary’s Cyprus-based co-founder and CEO Oren Laurent said.
 
“On the other hand, bearish investors expect gold’s downwards path to continue, with stock markets currently at a five year high and the US economy strengthening.”
 
In a prescient reminder, Laurent told MiningNewsPremium that in July Federal chair Ben Bernanke, when asked to explain gold’s rollercoaster journey , replied that nobody really understood gold prices and he didn’t pretend to do so, either.
 
In this light, Laurent has serious reservations about Edison’s prediction.
 
“I see the thinking behind [Edison’s] calculation, but I am not convinced that we can forecast the price so far ahead, so precisely and confidently,” said Laurent, who co-founded Banc De Binary in the aftermath of the 2009 global financial crisis.
 
“The markets cannot possibly have already factored in all the unknown fundamentals and public sentiment for six years in the future – it is important to keep in mind that gold is so interesting to follow, but also harder to analyse than many other assets, because of what a significant impact investor sentiment has on its price action.”
 
He noted that gold dropped to $1225.55/oz on November 25, the lowest since July 8, amid speculation that the Fed would scale back monetary stimulus – and there has been a bearish trend following the break of the $1260/oz support level which is now providing resistance.
 
“Theoretically the low gold prices should stimulate and increase the physical demand,” Laurent said. “It is now marriage season in India which fuels demand, and the precious metal is also becoming increasingly popular among the growing middle class in China.
 
 
 
“However, it is possible that public sentiment could take precedent and push prices slightly lower still, so long as the Fed is in the spotlight and investor confidence wanes.
 
“Goldman Sachs has estimated that it could fall to $1050/oz by 2014 with the US economy strengthening. Some analysts even suggest that now the gold bubble has burst, prices could go as low as $800 by 2015, but that seems dramatic and highly unlikely to me.”
 
He conceded, however, that at some point the fundamentals would likely kick in and positive sentiment would ensue.
 
“Yes, the economy is improving, but there remains wide uncertainty and we still haven’t fully recovered from the 2008 global financial meltdown,” Laurent said.
 
“Many central banks are still pursuing money-printing policies and some analysts are concerned about a possible resulting currency crisis.
 
“For many investors, gold will always be that safe haven asset. History teaches that although the asset can undergo price fluctuations, in the long-term it is a relatively safe investment because it has an inherent value which can’t collapse in the same way that stocks are at risk of doing.
 
“Gold symbolises tangible wealth and this very quality makes it desirable. Appetite for the commodity in China and India will probably grow steadily in the next decade.
 
“Plus, gold will continue to be needed in electronic, industrial and medical applications due to its conducting qualities and resistance to corrosion.
 
“So I do agree with Edison that in the mid-to-long term, investors have more reason to be bullish than bearish about gold. To what precise value it will rise though, I couldn’t say. If Bernanke is allowed to express uncertainty, so can I.”