Your News to Know – January 20, 2015

Latest News about the Economy and the Gold Market

swiss de-peg franc from euro

Each week, Your News to Know brings you the latest news and critical reads regarding the gold market and the overall economy. Stories this week include: De-pegging of the Swiss franc from the euro causes gold prices to soar, global gold demand to increase by 15 percent this year, and top gold forecaster Ross Norman offers his insight on gold and silver prices for the upcoming year.

De-pegging of the Swiss franc from the euro causes gold prices to soar

Last week, the Swiss National Bank opted to de-peg its franc from the euro, also known as a ‘pegxit’. This decision caused the price of gold per ounce to increase by about $70, bringing it past $1,280 an ounce. Ross Norman, head of London bullion broker firm Sharps Pixley, told ArabianMoney that last year’s Switzerland referendum on gold was “the right country, just the wrong event” to send gold prices skyrocketing – with the ‘pegxit’ proving to be the ultimate catalyst.

Previously, the Swiss also played a major role in increasing global prices of gold when they hit an all-time high of $1,923 an ounce on September 6th, 2011. This was when Switzerland first decided to peg its currency to the euro, at 1.20, so it should come as no surprise that another pegging-related decision by the Swiss caused a correction in gold prices.

This decision is believed by many to have been heavily influenced by the upcoming Quantitative Easing money printing program by the European Central Bank, slated for within the next week. “Money printing on a very large scale usually means only one thing for bullion prices and there is only so much manipulation that the central banks can hope to perform at the same time,” ArabianMoney goes on to note. As the printing program continues, gold in euro terms is expected to further skyrocket.

Global gold demand expected to increase 15 percent this year

Investment banking firm HSBC foresees a rise of up to 15 percent in global gold demand in 2015, according to a report by Bloomberg. This increase will largely be influenced by increased consumption of gold in the east as well as investors returning to gold-backed exchange-traded products.

“Jewelry, coin and bar demand fell in 2014 from exceptionally high levels in 2013,” Bloomberg analysts James Steel and Howard Wen wrote in this month’s report. “We look for a moderate recovery this year based on anticipated demand from China and India.” Gold demand in China and India significantly affects global demand because the two countries account for half of the global gold consumption.

The 3.7 percent increase in the price of gold this year has been influenced by rumors that the Federal Reserve refuses to increase interest rates in order to combat inflation. Central banks have been stocking up on gold after being the sellers for two decades, further establishing its price. Consumption in the east is expected to boost the price even further. “The global flow of gold from west to east will probably last for up to two decades as rising incomes spur demand,” according to a forecast by the China Gold Association.

Esteemed gold broker offers insight on changes in prices of gold and silver

Ross Norman, head of Sharps Pixley, disagrees with the majority of mainstream forecasts regarding gold prices in 2015 and offers his own take on what to expect in terms of pricing for various precious metals this year. In his submission to the LBMA forecasting competition, he “goes out on a limb” stating that he expects the price of gold to average at $1321, with an expected high price of $1450 and a low price of $1170 per ounce.

“We see ongoing declines in economic growth prompting central banks to fight deflation by resorting to inflationary pressures in H2,” Norman said in regards to his optimistic forecast. “If our outlook for gold in dollar terms is bullish, in emerging currencies it may be even more so as investors seek to insure or hedge against currency debasement. As such, we foresee good demand for the physical.”

In the past, Norman was chosen as the winner of the LBMA competition a total of five times, as well as often placing among the top ten forecasters. Mineweb’s Lawrence Williams suggest that Ross Norman’s bold forecasts go hand-in-hand with bullish gold trends. Norman also predicts that the price of silver will rise to an average of $18.56, with his platinum and palladium average price forecasts being more conservative at $1286 and $876, respectively.

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bloomberg, euro, Featured, hsbc, lawrence williams, mineweb, quantitative easing, sharps pixley, switzerland