Gold

Gold: StanChart see a bullish signal in gold as lease rates for the commodity spike to multi-year highs, which last occurred in the credit crunch in 2008. Relatively, the 3-month lease rate to borrow gold is at 34 bps, compared to USD at 27 bps- amidst the large amount of ETF selling that has been going on recently. House see this as a rare occurrence that shows tightness in the forward market for gold. Two fundamental developments which steadily undermined prices was the early withdrawal of QE by US Fed (causing expectations on interest rates to be higher) and negative economic developments and sentiments in China. StanChart believe the concerns are overdone, and gold supply is likely to be choked off by lower prices and demand should slowly recover. House expect the rising cost floor to provide support over the long term and cutbacks in mine supply will likely help to underpin prices. StanChart revises down its longer-term price forecast for gold in 2014-2016 to USD1400-USD1350 from the previous USD1500-1600 (decrease of 7% and 16% respectively. House expect prices to find a floor soon and then rally above USD1400/oz by year end.