Gold forecasts are hard. Especially about the future...
The LBMA's annual forecast shows there is little wisdom in crowds, even among the best analysts, writes Adrian Ash at BullionVault.
Each year, as a service to the market and its members, the London Bullion Market Association surveys the leading forecasters at the top banks and consultancies. Each entrant must pick the coming year's high and low in the Dollar gold price, plus the annual average overall. The same contest is run for silver, platinum and palladium too.
Once the year ends, the LBMA winner...whose forecast average came closest (with the high/low as a tie-breaker)...receives a little gold, plus the glow on their CV of beating the best.
No, we don't enter. Because we don't know where price is heading. (And if we thought we did, we certainly wouldn't tell the world!) But looking at the average of the 2014 forecasts, "So boring, so safe!" was the cry from more than one happy reveller at last night's drinks in the City to mark LBMA chief executive Stewart Murray's retirement.
Here's the thing. Individual forecasts stand out. Each analyst explains their forecast, and the expertise is invariably clear. But averaged out as a consensus? On our maths today, the LBMA forecast lagged the gold price's annual average 5% each year between 2008 and 2011. That peak then taught analysts a lesson, as even the winning 2011 forecast came more than $20 shy per ounce. So for 2012, the average forecast was then 5% too high. And as gold prices finally turned sharply lower in 2013, the average LBMA forecast was 25% too bullish.
Same story in silver, only (as ever in silver) with bells on. The average forecast of the annual average was 10% too timid in 2008-2011. The closest forecast at the top was more than $1 shy, a full 3%. The next year saw consensus overshoot by 10%. It then overshot by a huge 40% in 2013.
Now, the average silver price forecast for 2014 sees a 16% drop, adding to silver's average 24% drop of last year. The consensus for gold (meaning here the average of the analysts' forecasts), sees a repeat of 2013 this year, with the average gold price sliding 14% from last year's $1411 to $1219.
The consensus has turned bearish at last, in short. So boring, so safe! And odds are, so wrong as well. Or so history says. But such is the wisdom of crowds when trying to forecast the future. No matter how accurate and expert the individual winner turns out to be.