Reuters
Thu Mar 1, 2012 12:25pm EST
By Amanda Cooper
…..
So the risk of losing this central bank liquidity fix has unsettled the markets, but investors and analysts say low rates, stubborn inflation, along with central bank purchases and emerging market demand for the metal will sustain the gold bull.
“What is more important with regards to gold is real interest rates are negative and this is the key issue that we have to look at. (A switch in ) this factor will probably signal the end of the bull market in gold and our view is that we are still some way from this point because inflation is a problem and interest rates are very low,” Richard Davis, a portfolio manager at BlackRock, the world’s largest asset manager, said.
“There is a good inverse correlation between real interest rates and returns on gold bullion. Once interest rates get to +4-5 percent, then the annualised return on bullion goes -10 to -15 percent per annum,” he said, adding: “In theory, you could argue is less QE is bearish for gold in isolation but there are many other factors there that are positive for gold.”
Real interest rates, which factor in the rate of inflation, are negative in 12 out of 20 of the world’s richest nations and are most negative in the United States and the United Kingdom, both of which have employed QE to boost their economies and have near zero nominal interest rates.
Real U.S. interest rates are -2.75 percent, compared to the G7 average of -1.76 percent and compared with a G20 average of -0.26 percent. Beyond the G7, the other members of the G20 have an average real rate of interest of 0.44 percent.
“There is quite a distinct possibility that we will see highs above $1,900. It won’t take it a lot to get back to those levels and I certainly wouldn’t be surprised to see gold going to a new high and going to $2,000,” Davis said, adding this was not BlackRock’s own forecast for the price.
…..
Anne-Laure Tremblay, a precious metals strategist at BNP Paribas, said with, or without QE, real rates would remain negative in the United States and elsewhere this year and Bernanke’s lack of explicit signal for more money-printing would not spell the end of gold’s 11-year rally.
“It’s not a game-changer. The absence of another round of QE in the U.S. would definitely be a bit less positive for gold, but it would not materially affect gold’s upward trend,” she said.
“We assume that gold prices will peak when the Federal Reserve and other central banks begin a monetary tightening cycle.”