After a solid decade of increased prices, gold may soon begin a “slow slide,” according to a new Credit Suisse report, “Gold: The Beginning of the End of an Era.”
“Against any sensible benchmark, gold still appears significantly overvalued,” says the report by analysts Tom Kendall and Ric Deberell. “It looks increasingly likely that [its] 2011 high will prove to have been the peak for the gold price in this cycle.”
The authors note that they previously had forecasted the gold price would hit a peak this year, but now think their prior forecast was too optimistic.
The report suggests the following factors will end the yellow metal’s bull run:
– The “extreme fear” of the past five years has faded.
Problems in Europe and the United States housing market caused many to flee to gold, given its historic role as a “store of value.” However, recent improvement in the American housing sector and aggressive moves from the European Central bank will cause less need for “safe havens,” the analysts say.
– Gold is too expensive.
“In trend terms, gold has never been this high for hits long,” the authors say.
– There is less risk of inflation.
While some have embraced gold as a hedge against inflation, the writers believe that “it remains highly improbable that inflation will become a major concern in the next year or two.”
“The greater risk is that gold will weaken substantially as economic data improve long before inflation expectations move significantly higher and/or the credibility of the Fed is called into question,” they assert.
The report doesn’t foresee a “collapse in the gold price,” but a “slow slide.”
And it does note that with the ongoing fights over the debt ceiling, if concerns about a United States default resurface, that could cause “strong flows into gold.”