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LAWRIE WILLIAMS: Murenbeeld decidedly bullish on gold

One of the most conservative of gold forecasters has come up with his latest forecasts for the gold price for the remainder of the current year and for 2021, and for him at least the latest figures have to be considered extremely bullish.  Vancouver Island-based Martin Murenbeeld, and his team of analysts and gold-followers have probably been one of the most accurate forecasters of the gold price out there in recent years.  In the past Murenbeeld himself may have been considered a cautious bull, at least in terms of his forecasts compared with the many ultra bulls out there who seem fixated on rapid upward moves in the gold price to $5,000, $10,000 or beyond. However,  Murenbeeld’s rather less bullish predictions have so far been much nearer gold’s real price performance to date.

What Murenbeeld and his team of economists and gold analysts at Murenbeeld & Co. do  is to propose three different gold price scenarios, apply a likelihood weighting to each of these and then come up with a median prediction. The three scenarios are a bearish one, a most-likely one and a bullish one and in the current climate the Murenbeeld team has given weightings to each of these respectively, of 15%, 65% and 20%, for the remainder of the current year and Q1 2021, and a slight variation on these weightings looking further ahead.  To the probability-weighted average of these, further small amounts for possible geopolitical  events have been added, although these additions might themselves be considered very conservative given the current volatile international political climate.  The Murenbeeld & Co, latest predictions so calculated are set out in the below table:

Given that these forecasts are for quarterly averages, this suggests the actual spot price ranges could be perhaps say 5% either side of these (our guesstimate), which suggests that the Q3 2020 quarterly price range could be from around US$1,768 to $1,954 and that for Q4 from around $1,868 to $2,064.  The gold price as I write almost 3 weeks into Q3 2020 is at around $1,810 spot – well within our projected quarterly range.

As Murenbeeld and his colleague Chantelle Schieven point out in their commentary on the revised forecasts, the new predictions are notably more positive than those issued in early April (which were already quite bullish by Murenbeeld standards). Several forecasting models were recalibrated this quarter and weighted more towards monetary developments such as the growth in central bank liquidity and inflation adjusted interest rates, along with the expectation that monetary policy has been and will remain ultra-easy.

Both Scenario B and C have turned sharply more positive for gold this quarter. The other note of interest is that even Scenario A will see gold prices rise later next year on the back of growth in global liquidity (which will not turn negative over the next six quarters in any of the Murenbeeld scenarios).

The overall Murenbeeld & Co. price forecasts tie in very much with our own predictions which suggested gold hitting $1,800 mid year (which may have occurred slightly earlier than we expected) and a spot price level of $2,000 being reached in Q4, although not necessarily maintained.  They do suggest a declining dollar index, which is definitely gold positive and the firm’s latest newsletter does have a focus on the Economist’s Big Mac Index which portrays this strongly – particularly with respect to South East Asian nations which have consequently wrested much of the global manufacturing industry away from the industrialised nations of the West.  This is something that President Trump seems to recognise but seems to be setting his sights on China and thus ignoring other Asian economies which also threaten the U.S. manufacturing sector through their low exchange rates and consequent relative product underpricing.

Of course underlying the whole gold price forecasting exercise is the somewhat unknown effects of the ongoing COVIUD-19 virus incidence, which is rearing its head particularly strongly in the U.S. and Latin America, and the crazy goings-on in U.S. equities markets which are booming despite the dire domestic economic situation.  Either, or both, of these factors could see enhanced flows into traditional safe havens like gold and silver which could have yet a further price enhancement impact.  This may already be happening given the continuing flows of gold and silver bullion into the precious metals ETF sector.  This all suggests that the Murenbeeld bullishness may continue to be conservative – but then may yet prove to be a particularly accurate forecast – perhaps for the wrong reasons given that there appears to be some big money out there using the futures markets to keep gold and silver prices well controlled!

19 Jul 2020 | Categories: Gold

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