Modest Gold Forecasts From Sharps Pixley - WHY ?
A large number of visitors to our website at www.SharpsPixley.com
have written in asking why we have put such a modest increase in the LBMA gold price forecast for 2012.
It could be said that over the last 10 years my forecasts have
consistently stood very much towards to the top of end of price expectations- much at odds with other LBMA members
forecasts. This position has put me in very good stead. This year we revert to the mean - with a forecast of an average
price for gold of $1765 - while the consensus amongst the other forecasters is $1766. Why ?
Fundamentally we believe gold remains a very solid bet - supported
by but not driven by good / supply demand factors - but it has been a long time since these have been drivers of
sentiment. Our caution can best be likened to digging a hole in sand - you can go so far before the sides start to gently
collapse on you and you can only go deeper by going wider. In gold terms it seems that gold can only sustain rally for so long
before the temptation to take profit becomes overwhelming and it diminishes the ability to rise exponentially... a victim of
its own success if you like much as we saw in the latter stages of 2011.
Our caution (if that's what a 10% y-o-y gain can be called) is also
based on the probability of a gain in the US dollar - yes, in a former article we described the dollar as the nicest horse in the
glue factory - but there is a sense here that the US has the
greatest chance amongst advanced economies (in our view) of resolving
economic confidence through jobs creation and the support of its MBS market which will lead to growth. As such we favour the dollar
over other leading currencies, which should place a drag on runaway commodity prices.
Gold has scored some pretty phenomenal gains over the last decade
and we expect that history will write that it performed its role as a preserver of wealth admirably during this period. That
history will not be written for a few years yet (probably 3 to 6 years) by which time will have peaked at a little over double the
current price by our estimates.
Like so many things, its not so much the price level but the manner
of getting there that matters. Periods of retracement and consolidation confer significant strength to the bull run in the
same way that a moment to reflect on the other side of the argument confers greater weight to the opinion expressed. In the
early 1970's gold saw a number of such periods of doubt before an explosive rally at the end.
Gold bull's may be dissatisfied with a gain of only 10% on the year
- if so, our response would be "be careful what you wish for"
Sharps Pixley, London