I would have expected the gold ETF SPDR Gold Shares (GLD), to grow most of the fourth quarter, but that was not the case as it has been moving down since early October. What type of things may be influencing the yellow metal early in the year and what are analysts expecting?
Junior Gold Companies will continue to have Challenges in 2013
The year 2012 was difficult for many gold investors, and it looks like a pretty bleak picture for certain junior mining companies in 2013 as well. What is a Junior Mining Company? A junior mining company is an exploration company that looks for new deposits of gold, silver, uranium or other precious minerals. These companies target properties that are believed to have significant potential for finding large mineral deposits. It will not be a good year for these companies again in 2013.
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The industry may not be able to supply new deposits and discoveries to replace what is being mined. The estimated ounces discovered since the mid 1990's has been steadily dwindling. It is costing more and more money to find the gold and a company that raises money today will not be able to go as far as it did just 5 years ago. In the last 5 years or so, 40% of gold mining capitalization has gone into developing new deposits and the other 60% is going to developing the new mines they already have in an attempt to keep productivity steady.
Gold May not Move much in 2013
Uncertainty has taken a hold of the gold market this year. Gold also found a temporary ceiling at $1,675 and the inability to pierce that level encouraged some selling. For next week Nabavi said gold could trade between $1,650 and $1,675, and if momentum pushes prices through the upper range, prices could rise to $1,695. Some banks can see gold going higher, but not by much. In fact gold may peak early this year and then retract. Bart Melek, VP and director of rates and foreign exchange research and TD Securities says as much:
We acknowledge that gold may peak earlier and at a lower level this year in comparison to what we thought a few months ago. we continue to like gold into 2013, but with a bit less zest than a few months ago.
One attributing factor to an easing in gold price is the inflation rate in China. China's inflation started to rise and this is expected to forestall easing policies (at least in the short term). It came as a mild surprise that its inflation was better than expected. December accelerated to 2.5% from 2% the prior month and the higher rate of growth in the last year and a half. Gold looks appealing when countries print money and it doesn't look like China will be doing that short-term.
So what should an investor expect?
The fourth quarter of 2012 looked like a perfect recipe for gold to move up. Monetary policy in September and December was calling for more easing, a presidential election with uncertainty, and the fiscal cliff fiasco was coming; all these should have created a perfect scenario for gold to increase, but it didn't. So as 2013 started, there was no reason for it to change the anemic performance from last year. Low expectations for gold appear to be in the majority for this year. Here are some positions on the metal:
Goldman Sachs: $1800.00/2013 and $1750.00/2014
Credit Suisse: $1740.00/2013 and $1720.00/2014
BNP Paribas: $1865.00/2013
Citigroup: $1750.00/2013 and $1655.00/2014
Things can change very drastically from early expectations. As the U.S. government wrestles through its spending and debt negotiations, the results could create an underperforming economy for the nation and create a formula for gold prices to increase again.