Economist Dr Martin Murenbeeld of Canada’s Dundee Wealth Management uses the Denver Gold Group’s European Gold Forum in Zurich as the annual platform for detailing his gold forecasts for the year and his reasoning behind his predictions and has come up with some pretty accurate results in the past. He utilises three pricing scenarios and attaches an estimated weighting to each to come up with final weighted averages. Last year he was close enough, erring slightly on the conservative side on the predicted annual average of $1476 as against an actual figure of $1571, but was much closer on his year end forecast of $1546 as against an actual figure of $1530 – a 1% discrepancy -certainly an excusable margin of error!
For the current year, although remaining bullish on gold – but conservatively so – he cited 10 reasons why he feels gold will continue its upwards path, albeit perhaps at a slower rate during the current year given that a bit of momentum seems to have fallen out of the market. In truth, the 10 reasons are mostly those expressed by many others in these pages over the year and basically boil down to the undoubted fact that global financial difficulties remain with us and ultimately will impact the gold market in a positive manner. His ten key points are: Monetary reflation; Global imbalances, Excessive Forex reserves; Central Banks buying, not selling; Gold not being in anywhere near bubble territory yet; Mine supply only rising marginally; Continuing investment demand; Commodity cycle having years to run; Current geopolitical environment; Inflation in emerging markets.
In many of these points he was very much in agreement with other presenters at the event who were also looking at the overall environment for gold – Philip Klapwijk of GFMS and Ross Norman of Sharps Pixley – who both emphasised some of the same specific points and who also took a relatively conservative, but positive, view of where gold is headed this year. In general the view at the conference from the economic analysts is that last year’s retracement from the yellow metal’s high point at the beginning of September was far from unusual in a long bull run – indeed there have been a couple of bigger retracements experienced in gold’s recent strong performance – and that it is now in a period of consolidation before moving higher later in the year. But no-one expects gold’s upwards moves ahead necessarily to be smooth.
While Murenbeeld pointed to some bearish possibilities too, he largely discounted these and came up with his three pricing scenarios for the remainder of the year ahead. The weighted average of these forecasts came out at an overall average price forecast for 2012 of $1760, a year-end price of $1833 and an average 2013 price of $1952 – thus anticipating a continuation of the bull trend albeit at a slower rate than the approximate 17% annual increase seen in recent years.
To an extent the conservative price forecasts have largely arisen from recent indications that the U.S. economy may be beginning to pull out of recession, although many feel that the most recent figures may not represent the underlying picture, and the indications from Ben Bernanke that the Fed is perhaps not considering a third bout of Quantitative Easing. However to the extent that the Fed still seems to be purchasing U.S. treasuries this does suggest that a stealth QE remains under way any way. Of course European QE continues apace and there are equivalent monetary easing programmes under consideration, or already under way, in a number of countries including China and Japan.
Indeed as Murenbeeld noted towards the end of his presentation, should another ‘Lehman moment’ arise and the Fed be forced to commit to an overt QE3 then gold could perform far better than his forecasts suggest.