Gold's year-end price target: What are experts betting on

On April 15, 2013, gold had its biggest one-day percentage drop in 30 years. Earlier gold had reached a high of USD 1888 per ounce in August 2011.

Gold seems to have made a decent recovery but could it be a dead cat bounce? David Lennox, Fat Prophets disagrees. He believes that gold price is probably going to do fairly well. Lennox is of the view that the gold price has had a pause and there is still an underlying strength which will push it up. “We think that certainly the USD 1800 an ounce is not out of question through the end of this year.” Also read: Gold slips 1%, ETF holdings hit lowest since Sept 2009 Conversely, Kishore Narne, Motilal Oswal Commodity Broker has a different view, he says, “I am looking at gold somewhere close to USD 1,280 per ounce level which it almost touched earlier. So, probably sub-USD 1,200 levels is what I am looking at in gold for this year end.” Moreover, commenting on Brent crude Lennox says, crude market is very finely balanced. “We are very comfortable at this point with our 2013 range on Brent between USD 92 and USD 120 per barrel,” he adds. Below is the verbatim transcript of their interview on CNBC-TV18 Q: We have seen some decent recovery in gold from USD 1,325 levels to about USD 1,470-1,475. Is this a dead cat bounce and should one take profit at USD 1,470? Lennox: We certainly do not think at this particular point in time that we see it as a dead cat bounce. We do think however that when the market was very busily selling down to USD 1,300 there was a lot of speculation coming out of the market. We then saw quite a strange set of events, where the retail market then started to buyback into gold. That is why see price now trading up to USD 1,460 per ounce odd region. From hereon we think that the gold price is probably going to do a fair bit of basing work while we start to see the market settle down somewhat. Q: What would be the basing range then? Would it be like straddling USD 1,450-1,460? Lennox: When it was trading around USD 1,500 per ounce and it was looking weak we thought the USD 1,450-1,475 range would be where it would do a lot of work to form up a base. That unfortunately did not come about and we saw it fall a lot lower, but it has come back very quickly to that level. We think that the damage that has been done by that fairly rapid decline and will require a fair bit of work in terms of the price just stabilising. That that is probably what is going to happen probably for the next few months with the price of gold. Q: Over the next one year where do you see gold prices headed? Lennox: We were very bullish on the price of gold in 2013 and we have now become a little more modest. We do think that probably through the rest of this year it would trade towards USD 1,800 from where it is now. We think that the factors are certainly in place for that to happen and we have not seen a significant change in those factors or views from that point of view. However, when you look into 2014 we are expecting global growth to become a little more supportive of stronger equity markets as we have seen the Dow Jones hit a record high. We do think that that could put little bit of pressure on the gold prices as investors come out of gold and start looking for broader equity markets away from the Dow Jones to invest in. So USD 1,800 per ounce for 2013 is what we are looking at for the rest of this year. It is probably too early at this point in time for us to be putting a call out on 2014. Q: What would the call be on crude? Lennox: We still think that the crude market is very finely balanced. If you have a look at Brent, it is trading around about USD 104 per barrel. We forecast it to trade between about USD 92 and USD 120 for 2013. We do think that there are factors on both supply and demand side that could tip the oil price in either direction. Certainly the markets are watching very closely what is happening in the US in terms of demand, but also at the fresh supplies that are coming on. Q: What are you telling your clients? Is this a time when you should be selling gold or given the retail pressure gold will stabilise as David says around current levels? Narne: I would like to defer from that. I would believe that gold for 2013 or at least for the early part of 2014 should seem to be bearish for me. I am looking somewhere close to USD 1,280 level which is almost touched earlier also. So, probably sub-USD 1,200 levels is what I am looking at in gold for this year end. In domestic markets as my view on rupee tends to support my bearish view on domestic gold prices. Therefore another 15 percent down is what I am looking at for this year end in domestic prices as well. Q: What would your longer term view on gold be say for early 2014 or end 2013? Will the levels be much lower than the USD 1460-1470 that we are seeing now? Lennox: We have said we are still of the view that the gold price has had a pause but we do think there is still an underlying strength that will push it up and we think that certainly the USD 1800 an ounce for US is not out of question through the end of this year especially. We premised that on the fact that we have seen a significant portion of the market in the retail level especially that must have been holding off its purchasing until I realised that the gold price has reached a point where I could no longer stay out of the market. We think that certainly bodes well for the price to strengthen through the rest of this year. _PAGEBREAK_ Q: What are the reasons for expecting a 15-20 percent decline in gold prices? Narne: There are two-three reasons. One, is gold is no more needed as a safety in the investors’ portfolio because global growth is expected to revive; at least the growth cycle would turn around towards the end of this year. Two is that every safe haven has a point of safety and the price at which gold is trading, is not safe. As well the kind of volatility which we have seen will take away the safe haven characteristics of gold. Three, I don’t think the increase in retail demand that we saw in India will sustain because a lot of people who had been sitting on cash had jumped in but if there is more downside then all the buyers will run away from the market. That is a typical investor mentality; first day people will buy, second day everybody runs away. So the moment second dip comes I don't think we will find any buyers in India. Q: So are you looking at a price of  Rs 23000 per 10 gm on gold? Narne: Anything between Rs 24,000 and Rs 22,000  per 10 gm should be a good level to enter from a long-term perspective. Q: What is the next move in crude? Will it be toppish at USD 104, a level which many people were looking at and do we see lower than USD 100 for crude? Lennox: As I suggested oil at this point in time really finally balanced. The markets have really focused on what is happening in the US supply in terms of fresh supply coming and already we are aware that the US is exporting greater amount of crude. They are also focusing on the demand side and we haven't seen a significant uptick in the demand out of the US. So when you take US as a whole, it would appear as thought that would probably want to put downward pressure on the oil price. In China where we know growth is still slowing and that would more than likely start to impact on a slower uptick in the demand for crude from that country. Again that would be suggestive that the price of crude should be falling rather than rising. We are very comfortable at this point with our 2013 range between USD 92 and USD 120 per barrel for Brent.