The current situation in the world is characterized by a high

Bernard Dahdah, Precious metals analyst, on the gold

Considering the prolonged tensions over Ukraine and signs of improving U.S. economy, how would you evaluate the current performance of gold?

We believe that price of gold would be dropping below the levels that currently see. With regards to the situation in Ukraine, if it becomes more complicated or escalates further, we consider that this could lift the price of gold further up. On the longer term perspective, I suppose the price of gold would be thrust lower by improving U.S. economic indicators.

What other factors will influence gold this year?

Recently, we were concerned about the situation in Iraq. Also, we were looking at Chinese and Indian demand situation. Both of them together are used to account for around half of the world’s consumption of gold. Speaking about the Chinese demand broadly, the reports show that it has dropped by 20% in the first half of 2014 along with the investor demand in bars that dropped by around 60% year-on-year. Moreover, aside from weak investor demand, there is the investigation into the Qingdao Port in China, where the possibilities of multiple or double pledging of gold was looked for in ports.

After the investigation of cooper and aluminium, there was a substantial drop in imports of gold in China. We have already seen that net Chinese imports of gold from Hong Kong have dropped during the last few months with regards of ending gold demand. Moreover, we were anticipating that with the arrival of moody there might be some loosening of import duties on gold into the country. However, it did not happen, as we saw in the budget, which was announced a couple of months ago. The situation has not been very good for gold, whereas I consider both these countries’ demand, which accounts for half of the global consumption of gold, would be weak by the end of the year.

We believe that the U.S. demand and investors demand will also remain weak. The U.S. Dollar is strengthening on the back of improving U.S. economic indicators. Thus, it is expected that, eventually, we will see higher interest rates, which should raise the opportunity cost of holding gold. Thereby, people will turn into interest yielding investments.

However, looking on the headwinds, which would support the gold, aside of geopolitical tensions in Iraq and Ukraine, I believe we have to look at Europe, which could potentially affect gold. Recently, we have seen the situation with two Portuguese banks, facing issues along with the ones in Italy and Spain. Generally, last week’s economic indicators from that part of the world have not been very positive.

Bernard Dahdah, Precious metals analyst, on the gold

The current situation in the world is characterized by a high degree of uncertainty. Hence, there is a high possibility of rising gold prices, which in comparison with positive progress in the world economy is in a downward trend. Taking this into account, what is your forecast for gold price in the next one to three months and in the longer-term?

We forecast the price for gold to be at 1,270 in the Q4 of this year, and we expect an average gold price of 1,265 in 2014. Moreover, we see gold at 1,250 for the year of 2015.