LAWRIE WILLIAMS: Gold ‘a specifically important asset at this time’ – Murenbeeld
In a week where gold appeared to be showing some good upwards momentum, but always capped before it could get out of hand, it is always interesting to read the views of Martin Murenbeeld, one of the most credible gold analysts out there.
A particular quote from his latest Gold Monitor newsletter struck me as being particularly apposite: “Gold is always an important asset for one’s portfolio but in our view it is a specifically important asset at this time” he states. Check out www.murenbeeld.com for details on Vancouver Island-based Murenbeeld and Company.
The past week has certainly been an eventful one for what should be gold-positive news. It has seen equities markets coming back sharply around the globe; uncertainty over the likely outcome of the U.S. midterm elections; the implementation of the latest President Trump initiated trade war tariffs with China; uncertainty in Europe over the fallout from a possible no-deal scenario for Brexit, coupled with nervousness over the forthcoming Italian budget which threatens to challenge the Eurozone hierarchy and; geopolitical fallout from the Khasoggi murder which could upset Middle Eastern alliances.
Given the confluence of all of the above, plus other geopolitical difficulties on the horizon, it is perhaps surprising that gold has been unable to break out of its trading range in the $1,230s. It has been making attempts to do so – gold futures hit $1.246 intra-day yesterday – but seemingly has not really been allowed to surpass the $1,240 spot level for any length of time, largely through paper gold transactions, and perhaps spoofing, on the futures exchanges. But in the same way that nagging upwards pressure enabled the yellow metal to break through previous strong resistance at $1,230 perhaps the $1,240 barrier may not have long to hold either. We would thus not be surprised to see gold back in the $1,300s before the year end.
We highlighted the potential impact on the gold price of uncertainty over the U.S. midterm elections just over a week ago (see: Gold may be waiting on U.S. midterms)and this theme has been picked up by a number of commentators, including Murenbeeld, since. But he has gone into a rather more detailed analysis of various outcome scenarios in his latest gold newsletter.
At the moment there appears to be a strong chance of the Democrats gaining a majority in the House of Representatives, but the Republicans comfortably holding on to their Senate majority. Such a scenario would probably be gold-positive in that it would lead to political gridlock. As Murenbeeld notes: Democrat control of the House would likely end fiscal stimulus, cap equity markets, and gold should get a boost on the back of equity market disappointment. But President Trump is unlikely to change course on the trade front and the dollar would likely remain quite buoyant as a result because China and others will probably keep their currencies depressed to at least partly counter the effect of increased trade tariffs which could mitigate some of the benefits for gold.
Murenbeeld goes on to note that under the Democrat House majority scenario, once Trump’s 2017 budget stimulus has passed through the economy, GDP growth rates would likely moderate to 1.5- 2.0% and the Fed could well pause its programme of rate hikes which would probably be more positive for gold.
But the scenario where the Republicans retain their House majority could be less promising – at least initially. President Trump would claim vindication for his policies and likely continue his tax breaks programme and equities would recover as a consequence – and an improvement in equity valuations could again weaken gold’s new-found safe haven appeal. Larger budget deficits, upticks in inflation, higher interest rates, a yet higher dollar, and more attacks on the Federal Reserve are also seen as more likely.
Thus Republican control of the House is not seen as being at all positive for gold, - at least not initially - and gold might thus drift lower. But, Murenbeeld notes, the US economy can only stand a surging dollar, rising trade deficits, and higher interest rates for a limited time. So the overall recommendation, even under this scenario, is to still retain a gold commitment, “because even the near-term outlook will be too volatile to do otherwise – to say nothing of the medium and long-term outlook.”.
Murenbeeld always comes up with weighted scenarios for the gold price and his latest analysis, published in his newsletter a week ago, shows a downgrade in the weighted average to $1,251 by the year end, but this could well be overtaken by events. Certainly if the Democrats take the House in the U.S. and equities continue to weaken we would expect a year-end price north of $1,300 – perhaps well north! This would be closer to Murenbeeld’s more bullish scenario, to which he gives a 30% likelihood and a year-end 2018 price of $1,341, and a 2019 year-end price of $1,519. Many would consider even this conservative!
27 Oct 2018