The year the gold bull market died
Gold may have risen 6.2% in 2012 but, by other measures, the bull-run ended in 2011, says the CPM Group.
Posted: Thursday , 28 Mar 2013
GRONINGEN (Mineweb) -
2012 was a bull year for gold in number, says the CPM Group but, by other measures, the bull-run ended in 2011.
Writing in the 2013 edition of its Gold Yearbook, the metals consultancy points out that, while the gold price rose 6.2% on an average basis, prices were unable to revisit the 22 August 2011 settlement peak of $1,889.70.
“Prices actually only moved between $1,525 and $1,800 last year, compared to a steady rise from $1,300 to $1,920 in the first eight months of 2011,” it writes.
While it is undisputed that the market for the yellow metal faced a number of hurdles last year, including hikes to gold import duties in India, a decline in investment demand for the first time in three years and significant production cost rises, for CPM the most concerning bearish signal seen last year was an informational one.
Over the course of 2012, it says, “The disparity between gold market commentary and real gold market trends and events significantly widened."
Adding, "The year 2012 was a year of struggle for gold, not one of booming success. Yet, gold market news and commentaries suffered a case of confirmation bias. Bullish news about central banks buying gold, the hypothetical potential of the Basel III committee increasing gold’s role in the global banking system, and a host of other headlines were either gross exaggerations of the actual implications to the market, misunderstandings, or simply false advertising.”
Backing up its point, the consultancy points first to the buying seen by central banks. While many commentators, including Mineweb, have reported that central banks remained net buyers of gold, CPM says, it is important to note, “the volumes actually were closer to levels over the past three years. There has not been a sharp increase in purchase rates over the past two years.”
As a second point, it writes, “Gold did not achieve tier 1 status under Basel III regulations. The Basel III committee actually ruled gold out as a high-quality liquid asset. The swarm of news headlines proclaiming gold as a tier 1 asset under Basel III was both confusing and outrageously false.”
So, what does this mean for 2013?
For the CPM group, so far this year, there has been some recognition of the inaccuracies of last year, with analysts lowering their price projections somewhat to account for such things as slower growth in Chinese demand, weaker import demand in India and a reduction in fiscal, monetary and political concerns, that had been driving investment demand.
“Perhaps,” it says, “the collective gold market has made peace with the loss of upward momentum in prices. Cooler, more rational heads are focusing on how to protect the value of their gold assets in a more hostile environment going forward.”
This could well explain some of the recent reaction by gold prices to the events in Cyprus but, equally some will argue, those events are precisely why the bull-run in gold has some legs left.