Gold Futures Index (GOLD)

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PDAC2012: Murenbeeld: Bullish Reasons Outweigh Bearish Reasons For Gold's Outlook
04 March 2012, 6:29 p.m.
By Debbie Carlson,
Global news editor, Kitco News
http://www.kitco.com/

http://www.kitco.com/reports/Kitco_News_Extensive_Coverage_DeC_Murenbeeld.html

Toronto-(Kitco News)--Gold prices still have further room to rise as more bullish reasons than bearish reasons give the yellow metal support, said a leading Canadian economist on Sunday.

Martin Murenbeeld, chief economist for DundeeWealth, said his forecast for the average price for gold in 2012 is $1,825 an ounce, and he sees gold trading at $1,942 by the end of the year. His 2013 average price forecast is $2,145. He said, however, that price outlook makes "no allowance for geopolitics."

He spoke at the PDAC2012, the Prospectors & Developers Association of Canada's annual convention, which occurs from Sunday to Wednesday in Toronto.

There are 10 bullish reasons why gold should go up and eight bearish reasons why gold should go down, Murenbeeld said, which makes him favorable toward the yellow metal.

On the bullish side, gold is supported by the following reasons, Murenbeeld said:

- Monetary reflation as the U.S. Federal Reserve and European Central Bank print money

- a fundamentally weak dollar

- countries seeking to diversify their currency reserves

- central bank buying

- only a slight increase in mine supply

- investment demand

- the commodity price cycle remains bullish

- gold is not in a bubble and has room to rise

- inflation in the emerging markets

- and potential geopolitical conflicts send people back to gold as a safe haven.

Of all of those reasons, monetary reflation is the most important, Mureenbeeld said. It's the liquidity that is in the market from ultra-low interest rates from central banks around the world, and the stimulus programs to encourage demand that is giving support to gold and other markets. Since 2001 when the current long-term bull market started in gold, there have been seven corrections in price that were more than 10%, including when the global recession hit in 2008-09 and last year during the European worries, he said. Yet since the lows reached during the 2008-09 recession, when prices fell to the low $700 an ounce area, gold prices have rallied to more than double that level.

He also doesn't think that gold's rally is over. Since 1800, gold's shortest rally was 10 years. The current gold bull market is just 10 years old. Given the influence of the "BRIC" countries – Brazil, Russia, India and China and the debt problems of western nations, he doesn't see gold's rally ending soon.

Murenbeeld cautioned that gold has some potential drawbacks to its outlook that those who wish to buy the metal should consider. He listed eight reasons that might weigh down gold:

-The EU recession could lead to fiscal retrenchment and deflation

-China falls into a recession and commodity demand plunges

-physical demand weakens because of high prices and weak economic growth

-the U.S. dollar strengthens

-gold becomes the liquidity of the last resort for cash-strapped countries and investors

-equity markets improve

-miners stop dehedging and begin hedging again

-and monetary policy changes and real interest rates rise again.

Recessions are price-negative for gold and commodities in general. When he mentioned the chance of China falling into a recession, he said that means China having growth under 6%.

Also, he said there is talk about governments selling gold to pay down their debts, including the U.S. selling its gold reserves to do deal with their debts. "That would be the most stupid thing to do. You never sell your gold when you can print money," he said about the U.S.

"When you need to sell your gold is when no one wants whatever else you can give them," he added.

After his session, Murenbeeld was asked what might happen to gold if Israel attacked Iran. He said gold would rally, much as it did during other politically tense situations. He said there were some media reports that if Israel struck Iran and Iran closed the Strait Hormuz, that oil prices might spike to $400 a barrel. If oil prices rose to that level, then gold prices would easily go over $2,000 an ounce quickly. That's just a guess, he said. But while it sounds like a sharp gold price jump, he points out that while a $500 move for gold, from about $1,700 to about $2,200 sounds like a lot, as a percentage it is not as big as oil going to $400 from the current $110 a barrel it is currently trading at.