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LAWRIE WILLIAMS: : Gold prices subdued relative to financial assets

We have always rated Canadian economist Martin Murenbeeld’s predictions on the gold price as providing one of the most likely scenarios out there.  Murenbeeld is not a traditional permanently bullish gold forecaster with regular predictions that the yellow metal will hit $5,000 or $10,000 or higher in the short to medium term, but does come up with what we see as a much more circumspect, and reasonable, scenario for gold price advance.  And to date his predictions have proved to be much nearer reality than those ofhe permabulls who court media headlines with their enormous price predictions.

In his analyses Murenbeeld comes up with three scenarios – a bullish one, which is still far short of the megabulls’ predictions; a middle of the road one and a more bearish one – and attributes a weighting to each of these.  The Murenbeeld team then comes up with a weighted median outcome which is then taken as the most likely path.  For the current year he thus predicts the Q4 gold price as averaging $1,951.  Note that this is an average level which does not preclude gold moving above $2,000 again at some point in the quarter – indeed the probability of such an occurrence with the anticipated average price is that $2,000 may be exceeded again before the year end, but perhaps not maintained. 

The quarter started with gold at around the $1,900 level and this is a bullish, but cautious, forecast and with the market’s take on the latest ‘black swan’ event – President Trump testing  positive for the coronavirus only a month before the Presidential election date – still uncertain, it could well now require some further adjustment.

We suspect the Trump camp will seek to delay the election, but to do so would require approval by the Democrat dominated House of Representatives, which is probably unlikely.  A delay could be seen to be to Trump’s benefit given it will give a little more time for the virus pandemic to be brought under control – or the figures muddied by being amalgamated with those occurring from the likely outbreak of seasonal ‘flu.

However, whether the election is delayed or not, and then whoever wins it, Murenbeeld reckons that the eventual outcome will have little effect on the prospects for gold.  He sees either Presidency result as still resulting in a positive gold price scenario.  He concludes the comment section of the consultancy’s latest Gold Monitor newsletter with: “Bottom line: From an historical perspective gold prices are rather subdued relative to financial assets. It is accordingly not unreasonable to expect gold to rise into the multithousands over the next decade – and notably so given the debt bomb sitting out there on the horizon!”  For Murenbeeld that is an extremely bullish statement.

One statistic that is noticeable from the latest Gold Monitor is the recent discrepancy between gold and the inverse of the 10 year Treasury Inflation Protection Securities (TIPS) yield.  This suggests that gold is a little underpriced and the recent gold price downturn was probably too far.  The Murenbeeld team has seen a very strong correlation between the inverse of the 10 year TIPS yield in the past and the gold price and the current TIPS yield graphic suggests that gold should be a little north of $1,950 – which looks about right to us too.  We suspect the gold price may correct to that kind of level early next week, although markets may yet need to adjust further to the Trump COVID-19 news which only broke late on Friday.  This could give a little added impetus to the gold price which tends to thrive on uncertainty.

04 Oct 2020 | Categories: Gold

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