Deutsche Bank’s Gold Price Outlook: A Contrarian Indicator?

Mainstream media and influential financial institutions love to forecast gold prices based on market sentiment. If prices are rising, their forecasts are in line with the rising trend. In a bear market, they lower their forecasts.

That is the easiest call because a trend continuation is a much higher probability event than a trend reversal. Also, it is in line with expectations of people, so the message is easier ‘accepted’ by readers.

Let’s take Deusche Bank (DB) as an example. In October 2012, when gold was still flirting with its all-time highs, DB forecasted steadily higher gold prices for 2013 and 2014, in an article entitled “Deutsche Bank lifts 2013, 2014 gold-price outlook.”

The bank raised its 2013 gold forecast by 3% to $2,113 a troy ounce and its 2014 outlook by 11.1% to $2,000/oz. Next year, the price of gold could exceed $2,200/oz, it said.

A major support for precious metal prices are the recent moves by central banks to expand their balance sheet, said the bank. Since gold is often sought as a hedge against currency weakness and inflation at times of loose monetary policy, such moves tend to boost its appeal to investors.

DB confirmed a long standing gold price target of at least $2,000, saying that “While we have targeted gold prices moving above $2,000/oz since the beginning of 2011, we believe the Fed’s open-ended program of QE announced last month increases our confidence that a surge in the gold price above this level is only a matter of time.”

What happened sixth months after that gold price forecast? Indeed, the precious metals complex crashed.

Could it be that these convincing forecasts are a contrarian indicator? We are not talking about ‘a’ forecast, but one in which the author is convinced that he ‘must’ be right.

Fast forward to today, where DB says that gold “should be going” to $750 /oz. In an article on, entitled “Deutsche Bank says gold’s fair value is $US750 an ounce,” the bank explained that their gold price model factors in world growth, the US dollar, money supply and central bank gold purchases.

“Gold would need to fall towards $US750 per ounce to bring prices in real terms back towards long-run historical averages,” said Deutsche.

Deutsche ran the gold price through several models to determine “fair value” for the precious metal.

[ … ]

And this correction will happen shortly.

“We believe financial forces imply fresh lows in the gold price in the months ahead,” said the bank. “We believe the adjustment in US long term real yields and the US dollar is still incomplete and interest rate and dollar markets will continue to move higher heading into next year and beyond.”

Well, sentiment and tone in this gold price forecast reminds us October 2012 (quote from the first article above).

Let’s face it, the “consensus trade” is that gold will and must go lower. When everyone is convinced about an asset moving in one direction, usually the opposite happens. Let’s see whether gold will be able to turn things upside down. It will be interesting to watch this space in the weeks and months ahead.

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