Martin M sighting...
Dundee economist Murenbeeld says dollar diversification will turn to gold
By: Tessa Kruger
Posted: '06-FEB-07 21:06' GMT © Mineweb 1997-2006
CAPE TOWN (Mineweb.com) -- Respected metals price and currency forecaster Dr. Martin Murenbeeld Tuesday predicted a stronger gold price in 2007, an overvalued U.S. dollar currency, limited supply and higher gold investment demand.
During a presentation at 2007 Mining Indaba in Cape Town, Murenbeeld, Chief Economist of Canada’s Dundee Group, forecast a 2007 gold price ranging from $674 to $707 to $755 per ounce.
He asserted that the U.S. dollar exchange rate was significantly overvalued, ranging between 15% and 35%, while the current U.S. account balance had risen to 7% of GDP from 3% a couple of years ago.
Murenbeeld suggested that the current account deficit could improve if there was stronger economic growth in the rest of the world resulting in more U.S. exported goods, or if the United States consumed less on the back of weaker domestic growth.
The Chinese currency, known as the RMB, also needed to be revalued, according to Murenbeeld, who was waiting to see how this issue would be resolved.
He asserted that international U.S. dollar reserves were excessive as $4.8 trillion in currency reserves were estimated to be held globally. Asia now holds more than half of the world’s currency reserves.
“Diversification from U.S. dollar reserves would do wonders for the gold price, even if Asia does not increase their gold investments to an unlikely 15% of reserves, but only decides to buy a portion of the 500 tonnes of gold annually available from the Central Bank Gold Agreement (CBGA),” Murenbeeld said.
Also supporting the gold price is OPEC’s current account surplus that is rising – putting great pressure on the organization to diversify and divest more funds.
“Indications are that there will be further diversification away from dollars, as there are fears of further dollar currency declines and geopolitical trends, such as anti-US sentiment in the Middle East, do not exactly support the currency,” Murenbeeld explained. “But other markets are not cheap, and gold is now cheap at ten barrels of oil for an ounce and in terms of the cost of financial assets.”
U.S. monetary policy is likely to be eased in future, as budgets are stretched as the baby boomers retire, causing fears that the US economy will slow down, he said.
Declining or flat supply caused by the lack of mine expansion during the 1990s also casts a favorable light on the gold price.
There is currently only 4,000 tonnes of “loose” gold in Central Bank reserves available. Meanwhile, non-signatories to the Central Bank Gold Agreement, such as Argentina, have said that it would be buying gold reserves and not selling it.
Demand has risen over the past few years on the back of demand by exchange-traded funds (ETFs) and gold returning to its monetary investment role. Investor demand also picked up in India and as a result of deregulation elsewhere.
Murenbeeld said that gold price cycles generally lasted a minimum of 10 years, and that he was bullish on the price for at least the next four years. However, he cautioned, that one had to remember that a counter year occurred in each 10-year cycle.
On the downside, the gold price could suffer from tight monetary policy, a rise in real interest rates and the observation that the gold price often decreased during or after a recession.
