BNP Paribas’ Tremblay: Gold Bull Run Will End In 2013 But Not Before One More Rally To $1900

July 26, 2012

BNP Paribas’ precious metals analyst discusses the outlook for gold and silver prices in the near and long term.


Anne-Laure Tremblay has been an analyst with BNP Paribas for over five years. She covers commodity derivatives forecasts for gold, silver, palladium and platinum and contributes to the Metals chapter of BNP Paribas's Global Outlook publication. HAI’s Sumit Roy caught up with Tremblay in BNP Paribas’ London office recently to discuss the latest developments in the gold market.

HardAssetsInvestor: After falling off the radar for a short while, it looks like eurozone fears are back as a driver of financial markets. Spanish yields spiked to a record high of 7.75 percent this week. What impact will this have on gold?

Anne-Laure Tremblay: Gold tends to be seen as a safe haven, which means that it tends to react less to bad news. Gold does not go up when there is extreme risk-aversion as the events of the past few months have shown. But it goes down by less than other commodities, for example, when there is an episode like we’re seeing at the moment, where people are worried about countries in the eurozone defaulting. Any aggravation of the risk-aversion linked to the eurozone crisis would probably drive gold lower, but less so than any other commodity.

On the other hand, risk-aversion episodes would probably force central banks to intervene by increasing the amount of liquidity in the markets. This consequence of an episode of extreme risk aversion would be beneficial for gold prices.

If we get QE3 or the ECB decides to relaunch LTRO [long term refinancing operation], then there would be a positive effect in gold.

HAI: You recently said that you see the Fed announcing QE3 as soon as next month. Why do you think the central bank will act now, and what will it do for gold?

Tremblay: The outlook for the U.S. economy will warrant an intervention. The Federal Reserve has been very clear that it is currently closely monitoring the job market in particular. We expect the job market to be sufficiently weak for the Fed to intervene at the end of August.

The intervention of the Fed through a third round of quantitative easing (QE3) would be positive for gold. It is worth looking at what happened in the previous two rounds. Each time, gold was a strong beneficiary of additional liquidity. There are two reasons for this—a rise in inflation expectations and weakness in the U.S. dollar—both of which tend to be positive for gold.

HAI: How high do you think prices for gold can rally on the back of QE3?

Tremblay: We forecast that gold will average $1800 in the fourth quarter of this year. We then see prices continuing to rise into 2013, as the effects of QE3 and additional monetary accommodation, whether in the U.S. or other countries, continue to have a positive effect on gold. We then see gold peaking in the second half of 2013, if markets stop anticipating further monetary accommodation. This is in turn dependent on an improvement in the economic outlook.

We wouldn’t be surprised if gold were to reach above $1900, possibly touching $2000 next year before it ends its rally for good.


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