Analysts at the German bank told investors on Friday (February 26, 2016) that they should buy the precious metal. “Gold is still expensive,” they said “but rising economic risks and market turmoil mean investors should buy it for insurance.”
Now, you may think this half-hearted recommendation doesn’t mean much. But it does. DB and just about every other major bank had previously expected gold would fall below the $1,000 an ounce level by the fourth quarter of this year as the U.S. Federal Reserve increased interest rates. But instead of expecting three interest rate hikes this year, Deutsche Bank now says it expects the Fed to be on hold for longer, anticipating only one rate increase in 2016 due to a contraction in the factory sector which “threatens to spill into the services sector”. (SPOILER ALERT: It already has).
DB now says that the fourth quarter of 2015 marked the lows for gold prices. In its Friday note, the bank said it has raised its forecast for the fourth quarter of this year by 26 percent to $1,230 an ounce. Please note dear reader that this is where gold traded on Friday so this is not exactly a bold call by Europe’s largest bank.
DB argues that the recovery since the financial crisis put the price of gold under pressure. But now, the German Bank says, “there are rising stresses in the global financial system; in particular the rising risk of a U.S. corporate default cycle and the risk of a sharp currency devaluation due to the sharp increase in China’s capital outflows.”
“We think the (economic) risks are to the downside. Gold has tended to underperform in an environment of strong global growth, so whilst not an outright tailwind, slowing growth certainly eases the pressure on gold,” it said in the note.
Ok. It’s a start. What they should have added to the list of risks is the growing crisis in European banks (with DB leading the parade) and the rising number of European countries favouring negative interest rates and elimination of cash…two even stronger reasons to own gold. Those admissions will have to wait for another day.