Gold to average $679 in 2007: Murenbeeld
Brendan Ryan
Posted: Tue, 26 Sep 2006
[miningmx.com] -- GOLD guru Martin Murenbeeld remains bullish on gold, forecasting a probability-weighted price of $646/oz by the year-end, and an average of $679 for 2007.
Addressing the Denver Gold Forum, he said there was a 50% probability that gold could exceed $700 as soon as next year. This did not factor in any “geopolitical blow- up such as Iran”; such events do not form part of his econometric models.
However, Murenbeeld said Iran had a major impact on the gold price “last time around” and, by his estimate, boosted the gold price $400 in the run-up to its $850 peak early in 1980. His assessment is that: “We will see a blow-up of this nature within the next several years.”
But it was not all good news. In advancing eight bullish arguments for gold, Murenbeeld suggested bearish factors were holding back the gold price in the short-term.
These were that monetary policy had tightened in some major economies while some investors were worried about the possibility of a recession. This would reduce demand for commodities as well as lower inflation pressures, he said.
“Those arguments are front and centre at the moment. Gold often does not do well when monetary policies are being tightened and during recessions, barring quick policy action, all commodities suffer.”
But any impact on gold would be limited because monetary authorities are “not willing to take the hit of a recession.
“In the unlikely event the US economy slips into recession, gold price weakness is likely to give way to strength as a result of the sharp decline in US interest rates that is bound to follow,” he said.
The greatest economic danger facing major economies was deflation and that governments/central bankers would follow easier money policies to avoid deflation, he said. “Governments will print more money.”
The core of Murenbeeld’s arguments for a stronger gold price lie in his bearish view on the US dollar and his belief that gold is in a rising commodity cycle that still has years to run.
Murenbeeld said the US dollar “may well have another 15% to 25% to fall” using the events of 1985-87 as a guide and factoring in the current US trade and current account deficits which he described as being “wildly out of whack.”
Investors fleeing the dollar
Turning to the gold demand and supply situation, Murenbeeld said some diversification by certain Asian central banks as well as by OPEC countries out of their huge US dollar holdings and into gold was inevitable.
“Theory argues it should happen and geopolitical factors suggest it will happen. The main barrier to massive dollar diversification is that other markets are not nearly as ‘deep’ as the US dollar market.
“To some degree these countries are stuck with US dollars. You don’t just move $200bn into a market and not make waves,” Murenbeeld said.
Central banks - which hold reserves of gold totalling some 31,000 tons - represented the largest single supply risk to gold but believed the danger was being overstated.
According to Murenbeeld’s estimates, there was only some 4,000 tons of gold that could be sold after deducting the volumes of gold either held by institutions which were unlikely to sell it or were subject to the central bank gold sales agreement.
Said Murenbeeld: “Some of that 4,000 tons has already been lent out to hedgers while some of the central banks which have sold gold in the past – like Argentina – now want to buy gold again. I don’t see a serious risk here.”
Revolutionary changes taking place on the demand side for gold through the creation of the gold exchange traded funds and the deregulation of gold markets in major consuming nations such as India and China.
“Organisational developments on the investment demand side of the gold market are very, very positive for gold over the medium term,” he said.
Finally, Murenbeeld believed the world economy was in a long-term bull market for commodities.
“An analysis of gold price data back to 1800 suggests the minimum length of time a bull market in gold lasted was 10 years which was 1970-1980. We are just entering the sixth year of the current cycle. I think this cycle has legs."
In each uptrend or downtrend there was at least one year of reversal of the trend but that did not mean the cycle was over, he said.
