ETF Securities says gold price correction looks excessive and may see rally

2nd July 2013


Nicholas Brooks, Head of Research and Investment Strategy, ETF Securities says he expects a rally in gold prices given that the reaction in bond markets to Federal Reserve tapering has been overdone.

“We believe the reaction of bond markets to Fed comments has been overdone, and ultimately real rates will fall from current levels, driving a rally in the gold price”, he says in a note published this week.

Brooks says: “All good bull markets need a correction.  After a twelve year run, the gold price was well overdue a major correction and this is now taking place, albeit at a much higher velocity than its increase – as is usually the case.  The silver price has been dragged down with gold, and platinum and palladium prices have been affected by China growth concerns as domestic liquidity has been squeezed. We believe the price corrections have been excessive and have returned precious metals prices to attractive long-term accumulation levels.”

“On our estimates, gold, silver and platinum with implications for palladium are now trading around 20%, 10% and 25% below their respective average marginal costs of production.  Prices will have to move above these levels to support long-term supply growth.”

Brooks also points out that short gold futures positioning is at an all-time high and silver shorts are now at over 10-year highs, indicating scope for powerful short covering rallies once fundamentals improve.

He adds that physical gold buyers, notably in China, have increased purchases as the price has dropped.

“While precious metals prices will be driven primarily by macro and technical factors in the near-term, we believe that at current levels they provide attractive value for long-term investors.”

Meanwhile another firm BullionVault says private gold investor sentiment remained steady last month from May according to its latest Gold Investor Index.

The Gold Investor Index measures the balance of buyers and sellers on’s online gold exchange, which it says, acts as a clear indicator of how private households are reacting to economic and financial news.

A reading above 50 on the index means suggests there were more gold bullion buyers than sellers, showing that gold’s appeal remained positive overall.

The index remained at 53.0 in June, unchanged from May. It peaked at 71.7 in September 2011, and hit a 16-month high of 58.6 in April.

Adrian Ash,’s head of research in London, says: “June’s torrid price action led some long-term holders to take profits, and it led some more recent buyers to realize losses too. But other people are taking this opportunity to buy gold near three-year discounts.”

29 thoughts on “ETF Securities says gold price correction looks excessive and may see rally”

  1. Midge says:

    Hi Shaun and thanks for the blog.
    I have commented here before that I believed that the benign inflation rate could be unsettled by a falling pound due to a Yes vote or a surge in the UKIP vote causing another coalition government in 2015.
    Perhaps that is partly correct but the less encouraging figures on manufacturing etc could be the cause.
    Although the media keeps referring to a lead for the independence supporters it must be remembered at this stage that it is just one poll indicating this.
    Surely if the vote for an independent Scotland was the winner the pound sterling would fall a lot further.
    As March 2015 is the anticipated time when Scotland would go it’s own way the uncertainty until that time would be immense.
    The wrangling over currency and the ownership of oil reserves could go through the courts taking months to be settled.There might be a call for the PM to stand down.
    As far as inflation( by the government’s preferred measure CPI) is concerned at present with the price of crude oil,wheat etc having fallen considerably maybe it will not be rising for some while yet.

    1. therrawbuzzin says:

      Rumour has it that the SNP’s own poll shows a 54-46 lead for YES.

    2. therrawbuzzin says:

      One further point.
      International maritime law means there is no need for negotiation ove oil rights.

  2. arrbee says:

    My daughter lives in Edinburgh and she tells me everyone there is very involved in this debate – at long last the politicians are getting the civic engagement from the public that they’ve always demanded; of course it could be a question of being careful what you wish for.
    Interestingly there is a lot of discussion on issues such as “what kind of economy do we want”, with groups such as the “positivemoney” people getting their ideas debated in public meetings.
    There is, however, contempt for the media reporting of how the Scottish public are handling the whole thing. There does seem to be a feeling that what they really want is independence from London, more than England.

    1. Anonymous says:

      Hi Arrbee

      It is a few years since the time I used to regularly visit Edinburgh but if it is the same as it was then your daughter is lucky as I liked it. As I put in the post I an pleased that we actually are getting some democracy here and wish that such a trend could happen south of the border too. I was suggesting “independence for Battersea” earlier partly in jest but also to point out that even in relatively central London the political establishment are way out of touch.

    2. Anonymous says:

      I’m in Fife, and the civic debate we’ve been having has been unreal. London-centric media still has no clue – and it’s totally unfair for people in rUK. Losing a third of the land mass, and totally unreported, and just focused on UKIP and Europe. We’ve been raging at it, and it’s one of the problems in a nutshell. The 50:50 move is not a shock to me tracking the progress, I said 2 years ago it’d be ‘close’. Most people with no interest in the opportunity haven’t engaged, haven’t campaigned, and just dumbfounded at the surge. But it’s not been a surge, it’s been steady persuasion with statistics – really positive, full of arts contributions, and actual village hall democracy! Wonderful! The polls have been dodgy reporting on low side I’d say(polls are always dodgy!). Some areas are reporting 70% Yes. The campaign from WM has been brutal. Online it’s been utterly incompetent, propoganda, and patronising, moving people to Yes. Real life it’s been negative, patronising, visionless, joyless, and repeated failure to acknowledge any failures, or learn. They show no sign of realising there’s a systemic problem. Labour are STILL TODAY playing politics with it – a) offering less than Tories?! and b)saying this new powers announcement is ‘new’! They haven’t upped what’s on offer at all, and they don’t have the power to offer it! They’ve not been largest party in the Scots Parl since 2007, and people are disillusioned, don’t feel any attachment to the leaders of London/Westminster. We have the crazy situation where neither Miliband would make offer today, so wheeled out backbencher Brown (who cancelled more powers in 2010, and is out of touch in Scotland), and Cameron isn’t welcome in the country frankly(though I still think he come up and speak). If we stay, it’ll be out of fear of markets/currency, how we feel about others in the UK, and enough people feeling that ‘it’s alright for them’ – not interventions by WMinister.

      1. Anonymous says:

        Re: media, any politically engaged voter here could correct most of the London journalists – the other day Sky asked a journo to ‘report the state of the debate’, but they were totally clueless – thinking it’s just about a campaign issue or ‘gaffe’. Any Scottish journo, if they’d bother to ask, would tell you it’s actually a rejection of Westminster and The City as a system. It’s been really messed up watching UK news.

  3. Anonymous says:

    On thing on twitter that made me laugh this morning:
    “it’s never a good idea to have a baby to stop someone leaving you”

    Let’s face it the UK debt mountain is going to implode due to *something*. Is this the straw that breaks the donkey’s back? It’s clear that Scots have had enough of the land-based pyramid scheme. Cracks all over the damn. Please paper over that big new one!

    1. Anonymous says:

      Hi Progrock

      It is really rather extraordinary that we are so close to the election with so many major issues unsettled is it not? Mind you on the other hand considering the quality evident in the UK establishment perhaps it is not a surprise at all that things are getting somewhat shambolic…

      1. Anonymous says:

        Agreed. I’m torn between the establishment being the usual UK ruthless / evil empire and a bunch of toffs in a room smirking at Osborne farting. I’m tending towards the latter as reality given the mess.

  4. Andy Zarse says:

    Hi Shaun,
    Good stuff! We know that after its independence Ireland quite successfully continued to use GBP right up until 1979. Why is it posited by some that this could not happen again.
    I do have some sympathy for Scotland’s predicament should she be denied access to the pound, post-independence (as advised by the BoE etc) Under such circumstances, to what extent would .Scotland be justified in telling rUk to keep her sovereign debt too?

    1. Anonymous says:

      Exactly, there is no way rUK will go down this acrimonious route. Bluster.

    2. therrawbuzzin says:

      Osborne, when he made his “Walk away from the UK, walk away from the £…” also laid claim to all UK debt, in ALL CIRCUMSTANCES.
      As such, any level of debt taken, and the level of interest payable on it, by an iScotland is a private matter between London and Edinburgh.
      Edinburgh would pay London, not the markets.
      It is of no concern to them, and as such, Scotland CANNOT DEFAULT.

  5. Anonymous says:

    column, Shaun. Since you brought up inflation targeting, I wondered how that
    would function if Scotland did leave the United Kingdom. Presumably, the CPI
    would no longer be calculated by the ONS for Scotland, but only for rUK. However,
    this could not be done automatically, as the CPI is not currently calculated on
    a regional basis, so one cannot calculate in a matter of hours the UK CPI
    excluding Scotland, as one could the Canadian CPI excluding Quebec.

    I know that
    Andrew Lydon, one of the members of the RPI CPI User Group, has been lobbying
    for regional CPIs for the UK for some time. I know that the UK is less than
    five sixths the size of Labrador and there isn’t nearly the same difference in
    climate between London and Edinburgh that there is between Vancouver and
    Iqaluit, but it still seems that regional consumer price indices is one of the
    major lacks in the UK consumer prices program. They would have lots of uses
    besides getting ready for secessions of member nations.

    The UK
    Cost-of-Living Index was based on a 1904 survey of household expenditures by
    working class families that covered all of the British Isles, including
    southern Ireland. This weighting pattern was still being used when the Irish
    Free State was created in 1921, and the Ministry of Labour didn’t change the
    weighting structure to exclude these Irish households or have a new household
    survey to create updated weights. In fact, the original weighting scheme was
    used until the demise of the Cost-of-Living Index itself, following the Second
    World War, with the creation of the RPI. The Ministry of Labour seems to have
    been unfazed by what the loss of Southern Ireland would do to the representativeness
    of the index weights because it had taken a lot of liberties with the weights
    in any case. Beer was omitted from the basket and cigarettes had a much smaller
    basket share than they should have based on the survey estimates.

    The Irish
    Free State government decided to create its own Cost of Living Index in
    February 1922 and by August 1922 it had done so. Somewhere between these dates,
    if not earlier, presumably the UK Cost-of-Living Index ceased to include prices
    from the Irish Free State, but I am really just guessing. Do you know what was
    done, please? I
    know it was way before your time. Andrew Baldwn

    1. Anonymous says:

      Hi Andrew

      I think that the UK establishment has been caught completely on the hop here an the evidence of the last couple of days is that the journey from complacency to panic is a short one. The questions you raise pose questions for economic policy in both rUK and Scotland post Independence. For a start with it use the ONS?

      I am afraid I am no expert on how the UK adjusted economic policy post the Irish Free State.

  6. arrbee says:

    Given today’s increase of 117% in a whole raft of train fares on Northern Rail, I suspect the government may not be too keen on regional inflation figures.

    1. Anonymous says:

      Hi Arrbee

      I have always been somewhat dubious about the averages used in train fares which your comment only reinforces.

  7. therrawbuzzin says:

    As usual, another great article Shaun.
    As I stated, about nine months ago, a sterling area, created by currency union between rUK and iScotland, is needed more by the rUK than Scotland.
    Remember, Independence does not just affect BoP, it will also HUGELY affect total GDP, which, as we know, the govt has been prepared to make itself look even more than usual, employing every possible exercise in chicanery to increase.
    Something like two-thirds of Scottish “exports” go to the rUK too.
    So, without a currency union, remove the Scottish share of GDP, keep the Scottish share of debt, and hugely increase the BoP deficit.
    Add to this, that North Sea oil reserves no longer underpin the debt, and you have an almost perfect storm brewing for £.
    That’s why I stated back then, that not only will there be a Currency Union, but the rUK will BEG for it, and Scotland, since it holds ALL THE BEST CARDS, will have the whip hand.
    No influence in monetary policy? LMFAO!

    1. Anonymous says:

      Hi therrawbuzzin

      The account is not all one-sided as some financial businesses seem likely to move south of the border. Actually so much seems uncertain right now, however I do welcome the fact that for once we are seeing some democracy…

      1. therrawbuzzin says:

        Everyone says that Scotland’s financial sector is too big; a move South by RBS isn’t going to lose me one wink of sleep.
        This idea that banks have to move to where they do the majority of their business is the reason they quote,
        If they already do the great majority of their business in rUK, the harm is mitigated and the Scottish economy further rebalanced.

    2. Anonymous says:

      Cameron could copy strongman Putin and send in the military, denying the Scots their democratic rights.

      You like Putin, don’t you ?

  8. forbin says:

    Hello Shaun

    2015 eh ? hmm, interesting date , given the oil price drops will affect not Scotland but the supply world wide , $85 to get LTO out of the ground , KSA reputedly needing $100 boe ….. LTO rig count is dropping

    remove that supply and we have a noce roller coaster ride

    then the Scots leave

    Maybe if HM said the new royal will be the future scottish king they will stay?

    Interesting times

    Anway I heard the latest NO campaign slogan mention the former UK and not rest of UK

    ” Vote NO for fUK’s sake ! ”

    oooppps sorry !


    PS: I’d like Scotland to leave because it would really show what a bunch of idiots we have in Parliment

    Cant we in the South divorce London ? oh fuggit we can’t !

    1. Anonymous says:

      Hi Forbin

      I agree that this whole process shows what a bunch of clowns are running our main political parties…

      1. therrawbuzzin says:

        And the fact that they are moving the circus to Scotland tickles me.
        Do they not realise that they are the problem, not the solution?

  9. Jer says:

    I think the strongest argument in favour of Scottish independence is that it will inject a little more competition into the English speaking world.
    At present we have a few companies siting in Ireland for the lower corporation tax rate, if the Scots do the same, being on the mainland, that might be attractive. Chancellor Balls wouldn’t now have a monopoly position on tax, Scotland is available, so he’d have to tax responsibly as only an imbecile would lend him any money.
    Scottish independence really could be a win-win, and if Cameron is forced out for rank ineptitude, a win-win-win. Yay, go Scotland!

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