Banks cannot forecast gold prices

Difference between gold forecast and the actual gold priceBased on a short analysis of bank forecasts, we can conclude they are clueless about the direction of the gold price.
This year, the difference between the average gold price and the predicted gold price for 2014 is already $75 per troy ounce
, as you can see from the chart below. It seems like bank analysts tend to extrapolate past returns. They were too optimistic in early 2013 and they seem to be too pessimistic on gold right now.


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Submitted by Market Update:

Last year we already gathered some forecasts by a number of big commercial banks and now we’ve added the most recent forecasts for 2014. Early 2013, when the gold price was about $1.650 per troy ounce, almost all banks expected prices would rise to $1.800 or even more dollars per troy ounce. Deutsche Bank and Merrill Lynch even expected the price would reach or surpass $2.000 per troy ounce in 2013. The lowest forecast was still $1.650 per troy ounce, so basically none of these banks expected the drop in price we saw last year.

Gold price forecasts by ten different banks through time

Gold price forecasts by ten different banks through time

Bank analysts extrapolate past gold returns?

After the violent price drop of gold in the first half of 2013, many banks slashed their forecasts for both 2013 and 2014. The red and green bars in the graph show the sudden adjustment to the new reality. Compared to just one year ago, banks slashed their forecasts by hundreds of dollars. For 2014, these banks expect a further price drop to on average $1.187 per troy ounce. That’s as low as the 2013 bottom!

Contrary to what most banks expected, the yellow metal made a nice rebound in early 2014. This year, the price of gold has already gained more than 10% and surpassed the 200 day moving average. This year, the difference between the average gold price and the predicted gold price for 2014 is already $75 per troy ounce, as you can see from the chart below. It seems like bank analysts tend to extrapolate past returns. They were too optimistic in early 2013 and they seem to be too pessimistic on gold right now.

Difference between gold forecast and the actual gold price

Difference between gold forecast and the actual gold price