It is no secret that gold is one of the most talked about assets of the last few years, as this metal’s historic run has put it in the limelight. The price of gold has gone up for 12 straight years, and is on pace to make it 13 when this year comes to a close. But it seems that despite all of the gold bugs calling for the metal to surge to unbelievable highs, major financial institutions are calling for the gold bubble to finally burst in the coming months [for more gold news and analysis subscribe to our free newsletter].
The Anti-Gold Sentiment
Being bearish on gold in the last decade has probably left you with your tail between your legs, as it has been one of the best performing assets out there. Its safe haven appeal and ability to keep pace with inflation has made it a staple product in many portfolios, but some of the biggest names on Wall Street are calling for the metal to finally endure a contraction.
Let’s start with Citigroup (C). The firm called for gold to experience mild gains in 2013 to average about $1,750/oz, but sees it falling in 2014. Goldman Sachs (GS) also hopped in the ring by calling for the average gold price to take a hit in 2014. BNP Paribas (BNP.PA) recently cut its outlook for gold in the next two years, and similarly agrees that the precious metal will rise in 2013, only to pull back in 2014 as the bubble finally gives way.
Most of the forecasts cite a stronger U.S. economy in the coming years, as we finally works our way out of the 2008 recession. Goldman specifically pointed out that the shale gas revolution will mean that crude oil can no longer hinder global growth and that global economies will be able to move swiftly forward. The IMF predicted the global economy to grow 3.6% in the coming year; a jump from 2012′s 3.3% [see also Preparing For Economic Headwinds: Bill Gross’ Commodity Picks].
What About Inflation?
These forecasts all seem to call for a similar move in gold, citing global growth and a higher risk appetite in the investing world. But what about the prospect of inflation? With money printing and stimulus packages in place in a number of different countries, it seems likely that inflation will have to pick up at some point in the near future, and some argue that it already has. Even if the global economy finds its footing, rising inflation has the potential to put gold back on the bull path. Then again, a strong economy with curbed inflation will almost certainly put pressure on gold prices. The only question left is which phenomenon will be more prominent: inflation or global economic growth.
Disclosure: No positions at time of writing.