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LAWRIE WILLIAMS: Murenbeeld cautiously positive on gold for the year ahead

At the European Gold Forum in Zurich – and as usual the first day was opened with a keynote presentation from Dr Martin Murenbeeld of Dundee Economics from Canada.  Murenbeeld is one of the best gold price predictors around and his analysis always looks to three potential pricing scenarios, low, medium and high, which he weights and ends up producing a weighted average for the year – which he then adjusts marginally for possible geopolitical events.

Getting straight to the point with his overall predictions for 2016 and 2017

Scenario

2016 Ave

2016 Y/End

2017

A (low)

1130

1070

1042

B (Medium)

1202

1219

1229

C (High)

1273

1361

1425

Weighted Average

1223

1268

1306

Geopolitical add on

25

25

25

Final

1248

1293

1331

The final prediction is pretty much in line with the cautiously bullish consensus beginning to emerge from many of the major bank analysts, and with a current gold price as I write of just over $1240 looks perfectly reasonable.  It is interesting though that Murenbeeld this year gives a higher probability to his Scenario C than usual and in his talk commented that he tended to be of this slightly more bullish viewpoint himself.

His presentation, which ran to around 35 minutes looked at what he reckoned to be the more positive and negative points for gold going forward and one got the impression that perhaps he was more confident on the positives than the negatives looking forward.

Among the positives he picked up on continuing Asian physical demand; Central Banks continuing to buy gold at around 100-150 tonnes a quarter (although as we have pointed out here before the vast bulk of this is from two ntions – Russia and China)’; ultra-loose monetary policy being conducted by the US Fed and other central banks; what he saw as an overvalued US dollar; inflows into the big gold ETFs; continuing potential geopolitical uncertainties; contracting gold supply from mines and to the key jewellery and investment sectors; and perhaps a return to a bullish commodities cycle.

He talked about some of these factors in depth, illustrated by some key charts – for the full presentation he told the audience that the charts and tables would be up on the www.dundeeeconomics.com website shortly

Some of the continuing demand for gold he put down to China attempting to present the yuan as a reserve currency to challenge US dollar supremacy.  From a recent visit to China he gleaned the information that China was in the process of building its reserves initially to around the 5,000 tonne mark (some believe it may already have done so hiding some of its gold in unreported accounts), and then gradually continuing to build until its reserves exceed those of the world’s biggest gold holder – the USA.  The belief is that some kind of gold backing for the yuan would improve its credibility as a reserve currency.

The U.S Presidential elections may also play a part as far as a potentially weaker dollar is concerned.  In his view all the possible winners of the world’s top political position are basically protectionist in their outlook, which would suggest the weaker dollar position.  A strong dollar dampens GDP, suppresses inflation and leads to higher unemployment levels as US manufacturing goods become less and less competitive on world markets.  The dollar has been through an upwards phase and Murenbeeld believes it’s now due for a downturn phase which he sees as positive for gold.

On the negative side for gold he also points to a possibility of the US dollar to rise as and when the Fed hikes rates – but not sure that he really believes that any significant rise likely.  Thus he also suggested that there may just be one rate rise this year, perhaps in September, which would still likely leave real interest rates in negative territory (positive for gold).  But obviously some analysts, like those at Goldman Sachs, take the opposite viewpoint.  He notes that the global economy remains sluggish and liquidity is declining.  If equities get back on an upwards track then investment interest in gold may wane again.

But overall Murenbeeld’s tone was bullish for gold.  Perhaps not so much so as to meet the opinions of the stronger gold bulls, but as a reasoned economic analysis of the pros and cons for gold his views carry a lot of weight and at least present a continuingly positive viewpoint for the more cautious investor

19 Apr 2016 | Categories: Gold, Dollar

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