Brighter and brighter
International commentators predict huge leap
THERE HAVE BEEN a host of forecasts recently that the gold price in US dollars will at least double before the current strong bull market in the metal comes to an end. Forecasts of a possible price of up to US$10 000/oz are being made by leading analysts.
The crux of their forecasts is that the series of financial crises currently following so closely on one another have definitely not ended. Investors worldwide are concerned about this and looking to secure their capital – and, traditionally, gold is seen as the safest haven. There is increasing distrust of paper (fiat) money, especially the US dollar.
This distrust also applies to governments. Many central banks that were sellers of gold for so many years are now net buyers. Then there’s the emergence of China and India – and even Russia – as buyers of gold.
David Rosenberg, Merrill Lynch’s former North American economist and current chief economist at Gluskin Sheff in Canada, has now come to the conclusion that his earlier forecast of $3 000/oz can be regarded as conservative. He bases that on, among other things, the ratio of gold to international gross domestic product, as well as the money supply (M3). If the ratios were to return to their earlier peak, gold should be trading at $5 300 and $5 700/oz respectively.
Another commentator who perhaps best sums up the thoughts of the gold optimists is Peter Krauth, CEO of Global Resource Alert and a well-known expert in metals and mining shares. He believes gold could reach around $5 000/oz between 2012 and 2014 on the basis of the following five reasons: Since 2001, the gold price has risen by around 400% in the midst of rela- tively low inflation of about 2,5%. The current view is that the US Federal Reserve will keep short rates close to zero, opening the door to rampant inflation. The central banks’ stimulation packages total an enormous $12 trillion, a large portion of which still has to be spent. The demand for gold has broadened. Large institutions, from hedge to pension funds, are allocating substantial sums to gold. And the World Gold Council points out there’s a rapid increase in the number of people who can be regarded as middle class (especially in the East) and have money to spend on gold. That’s becoming an important bull factor for the metal. Central banks became net buyers in 2009 – the first time in 20 years. The economies of the US and many other countries are struggling and there’s a confidence crisis regarding fiat money. In such circumstances, the demand for gold will keep increasing as people try to protect the buying power of their investments. There’s a mania stage lying ahead for the gold market. That will put the gold bubble through three distinct stages: devaluations, growing investment in gold and, last of all, what Krauth calls the “stratospheric” stage, when the price will probably reach $5 000/oz. Another commentator, Arnold Bock, writes in a similar vein on www.safehaven. com. He even believes $10 000/oz can be reached, because of (among other things) approaching sovereign debt defaults, the collapse of large financial institutions, manipulation of the gold market and insufficient supply to meet the growing demand.
US Gold Corporation CEO Rob McEwen has made a study of what he calls the horrific scale at which the US and other governments are going into debt. It’s a foregone conclusion for him that the value of the US dollar will keep falling and he thinks gold could already reach $2 000/oz by year-end 2010.
Alf Field, well known in SA, writes the US is heading for such a huge financial crisis it will overwhelm all the other factors. The greenback will be the main sacrifice. That could result in a gold price of $5 000 to $10 000/oz.
Harry Schultz, veteran publisher of a widely read international newsletter, says the world economy is at a heartstopping moment. At the one extreme there’s talk of massive deflation and even depression and, at the other, hyperinflation. Schultz feels gold has the potential to reach $6 000/oz and consequently advises his international clients to invest 40% to 50% in gold shares and gold itself, 10% to 15% in other commodities and 30% to 40% in government bonds.
It’s interesting that some other commentators also advise investing in gold shares with marginal mines (such as Harmony in SA), yielding the largest potential profit.