Mostly: Classical

[amarksp]

Martin M updated gold forecast


Martin Murenbeeld
M Murenbeeld & Associates, Inc., Vancouver


GOLD
Range: $495 - $625
Average: $561
Our studies indicate that gold supply is inexorably falling behind demand as a diminishing number of new reserves fail to compensate for dying mines. This has been happening for some time but, until now, the effect has been masked by official sector sales and producer hedging. However, official sector sales will likely dry up in the future, and they could become net buyers of gold. This transition, together with an expected increase in investment demand, jewellery consumption and a diminishing mine supply, will cause the supply-demand imbalance to heat up the gold price. We believe this has already begun.

We think the year 2006 will be exceptionally difficult to get "correct", owing to our outlook for increased economic and financial volatility in the world economy.

Our baseline is that the US$ will tumble in 2006, possibly quite sharply. US interest rates will stop rising, possibly even be cut, while Asian and European interest rates will likely rise somewhat. China is likely to revalue the RMB. US debt levels will continue to rise, and if house prices flatten or decline, the Fed may have to lower interest rates quickly in order to forestall a potential recession. The US current account deficit will worsen, which will continue to undermine confidence in the long-run health of the dollar. Increased focus on all governments' retirement-related financial obligations will likely add to general concerns that monetary reflation can not be far off - which should benefit bullion greatly. Growing demand in Asia for commodities generally, and gold specifically, both from the public (and quite possibly now also, finally, central banks) will add to gold price buoyancy. Investment demand around the world will continue to grow as well. The "war on terrorism", while mostly in the background, could suddenly add to gold's appeal. Oil is a wild card, but we expect more oil revenues to find their way into gold bullion.

Set against this demand-friendly environment is a rather restricted gold supply profile; mine output is unlikely to rise significantly and CBGA signatories are limited in how much gold they can sell. (Over time CBGA sales may well be taken up by Asian central bank purchases - we'll see - which will add significantly to the bullish environment.) Our major concern is that our baseline outlook proves to be too pessimistic, and that our first alternative outlook - average $613 for 2006 - will prove to be more accurate.



http://www.lbma.org.uk/publications/forecast%202006/forecast2006_gold.htm