Staying on a roll
Price continues to hit new records on back of global financial mayhem
GOLD BLASTED THROUGH US$1 600/ oz last week and two of the most authoritative forecasters on the metal – GFMS CEO Paul Walker and DundeeWealth Economics chief economist Martin Murenbeeld – are calling it higher still. Walker says: “It wouldn’t surprise me to see gold go to $1 700/oz and it could easily spike to $1 800/oz before this debt mess is finally sorted out.”
Murenbeeld published his latest quarterly assessment of the gold market last week. He described his findings as being “our most bullish forecast yet. A $2 000/ oz price is in sight for next year.” Murenbeeld allocates a 35% probability to that happening, pointing out his most likely “probability weighted” prediction is for gold to hit $1 822/oz next year.
There are two key factors to be kept in mind here: these predictions are coming from the “conservative” end of the gold spectrum from forecasters who have been right far more often than they’ve been wrong over the past five years.
Where Murenbeeld has missed on his calls it’s been because he was too cautious in his price rise predictions.
Walker for years was known as gold’s “big bad bear” due to his persistent warnings about the threats that could derail gold. But he’s changed his tune dramatically this year and moved firmly into the “bull” camp – albeit still with some caveats.
The other factor is gold is hitting new highs during a period traditionally quiet for the metal. The old investment adage “Sell in May and go away” applies to gold just as much as it does to equities. July/ August is the main holiday season in the northern hemisphere, when all its “movers and shakers” knock off and the market goes quiet. Gold usually turns down but picks up again later in the year when the important Indian market for physical gold begins to again buy around September/October.
Both forecasters cite the on-going debt and financial crises in the United States and the European Union as the prime drivers behind gold’s current rush. Walker says nothing has changed since his presentation of the GFMS annual gold review in Johannesburg in April. At the time he cited the unwillingness by the governments and central banks of the US and Europe to “grasp the nettle” and tackle the fallout from the global financial crisis head on as the main reason for his conversion from gold bear to gold bull. Walker now comments: “Until the US comes up with a credible debt restructuring policy that deals with its rancid balance sheet, and until Europe gets its act together in the face of its debt contagion, you’ll see this bull gold market scenario continue to play out.”
But Walker again sounded his warning the market will at some point turn, the key factor being when real interest rates again turn positive. “Central banks continue to keep longterm yields low despite the fact that the reason we’re in this mess is long-term yields were kept too low for too long. The situation is unsustainable.”
However, Murenbeeld commented: “This week there was confirmation of something most of us had deduced: the Fed stands ready to adopt more monetary stimulus should the economic situation warrant it. The US Federal Reserve’s current view is it isn’t warranted.”
That’s a reference to what’s known as QE3 – a possible third round of quantitive easing through which the Fed could pump yet more money into the US economy.
Walker commented in April: “Should there be a QE3 then all bets are off and I’d go out and buy gold.”
PAUL WALKER AND MARTIN MURENBEELD On the same side for once