HSBC precious metal forecasts looking up but not far enough
Posted on 24 May 2008 with no comments from readers
This week gold closed at $925 an ounce and silver topped $18.10. The bounce back from the March correction is gaining strength with silver showing a five per cent gain for the week, outperforming gold.
HSBC has raised its 2008 price forecast for gold to $915 an ounce from $850. You have to wonder, having upgraded its 2008 forecast by a large margin – how long before the bank does it again? One way of improving your accuracy in forecasting is constant revisions – never mind that they were inaccurate to start with!
Of course it actually matters a great deal. Investors take HSBC’s house view very seriously. The bank is pessimistic on gold and silver mainly because it sees the US dollar recovering to $1.35 to the euro by the year end. Its view is that a short, shallow US recession will give way to a quick recovery.
Well this would be the first financial crisis in economic history to work like that but it could be different this time. The typical duration of a financial crisis is three years, including a bond and stock market crash that we have yet to see.
The bank has lost $62 billion on its recent investment in the USA and does not exactly have an exemplary record in correctly calling this market. When I interviewed HSBC chairman Sir John Bond in 2005 I asked him was ‘US housing not an accident waiting to happen?’ he responded ‘no, not at all, the US economy is fundamentally sound.’ Famous last words, indeed!
HSBC metals analyst James Steel says in his research note: ‘The US dollar remains an important determinant of gold prices, but inflation concerns and a resumption in Fed rate cuts may offset the bearish effect of recent dollar strength.’ Quite, we could still interest rates slashed after a Wall Street crash and a strong move by retail savers to gold and silver as a safe haven.
Steel also raised his gold forecast to $850 from $725 for 2009 and to $725 from $650 for 2010. By 2010 I think we will see oil trading above $200 a barrel and gold ahead of $2,000 an ounce. This assumes more dollar depreciation, and a long and deep US recession, the worst since the Second World War. HSBC assumes neither happens and offers no convincing reason why not.
For silver, Steel has lifted his price outlook this year to $17.25 an ounce from $14 as strong investment demand should more than offset increased mine production. Again this just looks hopelessly low – silver passed $18.10 yesterday – and we have seen the first signs of a physical shortage of this metal which is consumed by industrial processes and actually in short supply, far more so than gold.
Consider too that an ounce of gold trades at seven barrels of oil while silver trades at 53 times the gold price. Now historically both averages are 15:1, so if that gap closes to the average silver is up by a factor of five with no rise in price for gold or oil.
HSBC is wrong on gold and silver as it was about US housing three years ago. If these current forecasts prove correct I will be amazed, and their recent revision suggests the bank no longer believes its own forecasts either.
no Comments posted by readers:
I don’t know what hsbc is smoking, but it must be good.
I see a long, deep US recession/depression.
I see counties in Calif. already in chapter 11, with police, fire, teachers, lay-offs.
Schwartzy has already ordered a top 10% budget slice, and that will still need another probably 25% slice.
I see in excess of 2 years housing supply, standing empty, – now.
I see Florida falling of a cliff.
I see true inflation of 11%+/-
Jingle mail on the increase, and at record levels now.
Regional Bank failures, massive muni bond failures, 401 wipe-outs, credit card defaults through the roof.
Rust belt homelessness, food stamps, “let them eat cake”.
I can’t see any way of avoiding this, the wheels are in motion.
Massive upcoming litigation, Moody, S&P, Fitch, etc, Bear Stearns, both from munis and around the globe.
Shopping malls empty, – vastly over built, condos empty, vastly over built, builders bankrupt.
Collapsing $
More bank failures.
Unwinding spreading internationally. Trillions to unwind. Social unrest.
Is there a bail-out big enough?
What international deals can benny/kissinger/saudi/IMF/BIS/cfr/trilateral/, come up with?
What cost to US hegemony?
What cost to democratic nations, financial and geopolitical?
Meanwhile senators debate drugs in sport, and bills to make OPEC illegal.
Yup, that’ll sort it!!!
Is it the end of fiat currency?
What value struck for gold?
Bretton Woods 3.75?
Marshall plan for US?
“There is no spoon”.
Pass me that new bottle, Pete, I just finished the last one.
Yes – I noticed Charlie Morris of HSBC on Bloomberg TV this weekend and his comments on gold seemed completely out of line with the house view. He thought gold a good buy at current levels after the recent correction. But how could that be if the HSBC house view on gold holds? My thinking is that they will revise it again and perhaps change their minds entirely after a Wall Street crash this autumn when we are all looking elsewhere.
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That’s a great name for a metals analyst! Ironic then that British (previously copper) pennies and two pennies are made from steel (copper plated to look like copper of course – isn’t that a deception against the people who work to earn that ‘money’?), presumably because the copper is too expensive to use for these virtually worthless coins! You can pick up all ‘copper’ UK coins made from 1992 onwards with a magnet but not the actual copper ones dated up to 1991.
Meanwhile, thanks to the Bank of England and the British governments, the British Pound has lost over 99% of its value in the last 75-100 years. A gold Sovereign which was of coruse the £1 coin is now worth £114 in melt value, just as a blob of gold metal, let alone any extra collectable value!
Dave.
http://1000gold.blogspot.com