Gold Shorts Not a “Slam Dunk” According to Credit Agricole

by on February 26, 2014 8:46 am BST

Credit Agricole sees gold being maintained through China, being the largest gold consumer, as incomes expand. The firm does not believe gold will see the kind of action seen last year, and it is on the other side of Goldman Sach’s gold short thesis being a “slam dunk.”

Davis Hall, global head of FX and precious metals advisory, said “I don’t think gold’s going to come back to $1,000, like many people are suggesting, because I’m seeing what’s happening in China.” So far, gold has seen an 11 percent increase in less than two months on rising consumption in Asia, continuing the gold transfer trend from west to east.

Hall believes easing money from playing the short side is likely in the past, but he acknowledged that gold is an opportunistic trade and not overly bullish at current levels. “I’d much prefer to buy if it comes down to $1,250.”

Analysts believe that demand for physical gold will greatly diminish at current levels. Perhaps this is true to some degree for the most price-sensitive investors, but the price for gold is still relatively low and still down 17 percent from 2013 highs near $1,700 per ounce. In comparison, gold is $578 less per ounce than the all-time high made in 2011 at $1,923.2 per ounce.

There may be a little demand regression, but mints have seen record demand in the slumping price of gold. Credit Argicole may contribute this to China’s wealth effect, but the economic economic climate is deteriorating in the United States, emerging markets are still uneasy and there is a potential credit crisis in China. All these factors bode well for gold over the long-term.