Mostly: Classical

[basserdan]

Another Martin sighting......


Gold Bull to Charge Through Short-Term Corrections

By Jane Louis
06 Feb 2008 at 12:00 PM GMT-05:00

CAPE TOWN (ResourceInvestor.com) -- Although some of the bears have come out of hibernation at this year’s Mining Indaba, economist Dr. Martin Murenbeeld reiterated in his keynote address on Wednesday that his often touted “Eight Reasons to Stay Bullish on Gold” are still active in supporting the gold price in the long term.

Murenbeeld, who is the chief economist at DundeeWealth Economics, listed his reasons to stay bullish as: continued monetary reflation, the U.S. dollar’s decline against Asian currencies, the diversification of dollar reserves, the “cheapness” of gold, constrained supply, growing demand, room to grow in the commodity cycle and favourable geopolitics for gold.

“These eight factors are still very much driving the gold market,” he said.

Monetary reflation is a strong supporter of gold, and the U.S. Federal Reserve has been very active recently in stimulating the U.S. dollar, Murenbeeld said. The Fed’s interest rate cuts over the past two weeks to combat a subprime crisis-induced recession in the U.S. have given gold a big boost.

“You can see what happened recently on the back of the subprime factor,” he said, noting that housing sector is already in a recession, and it could bring down the whole U.S. economy. “Do we expect to see monetary reflation continue? The short answer is yes.”

Murenbeeld pointed out that it is very likely other housing markets in the world on the verge of implosion, making monetary reflation imminent. But he added that in the short-term, the U.S. Fed may slow down its rate cuts.

“If this turns out to be a mid-cycle slowdown, there may not be more (interest rate) cuts to come,” he said, or at least the rate cuts may not be as large. This could cause a pullback in gold in a short term, but future rate cuts will be bullish for the precious metal.

In addition, gold may correct in the short term as it becomes increasingly likely that the dollar will start to gain against the euro. But what is becoming more significant than dollar-euro movements is the dollar’s imminent decline against Asian currencies.

“We do know that that gold and the dollar tend to turn roughly at the same point,” Murenbeeld said. “There’s a feeling here that the dollar has more to fall.”

Also, dollar reserves have become increasingly diversified, which is a historical indicator that the gold price has more room to grow. In fact, foreign exchange reserves are at a record high.

For example, OPEC’s current account balance is rising sharply. “The last time OPEC had a current account deficit peak, the gold price peaked,” Murenbeeld said.

Another reason to stay bullish on gold is that “gold is cheap,” he said. Gold would need to hit $2,250 per ounce in today’s terms to be equal to its record high of $850 in 1980. In addition, gold is cheap compared to oil.

“In terms of oil, gold is relatively cheap. I don’t buy into ratios, per se, but I do buy into oil makes people rich.”

Supply will continue to decline, while demand continues to grow in dollar terms, according to Murenbeeld, which are fundamental supporters of the gold price. “We will not see an upturn in mine supply for the time being.”

In addition, he pointed out that the shortest historical gold bull cycle lasted 10 years. We are only in about year seven of the current cycle, he said.

“My feeling is that this is a prolonged cycle,” he said, adding that there is no need to worry even if the gold price falls back in the near term. That doesn’t mean the cycle is over.

Finally, geopolitical turmoil is good for gold, according to Murenbeeld, who cited the example of the Iran hostage situation and Russia’s invasion of Afghanistan in 1979-1980. “My own feeling is we’re going to revisit something like this.”

The only bearish arguments for gold are the possible fall of the euro and fears of a recession in the U.S. and worldwide, he said. “Recessions are not good for commodities prices.”

But overall, Murenbeeld said that despite short-term pullbacks, he’s bullish on gold. He listed his forecasts as $901 per ounce for the 2008 average with a year-end value of $925 and $961 per ounce for the 2009 average.

“Overall, that’s the number, and that’s what we’ll go with.”

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