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LAWRIE WILLIAMS: The Murenbeeld Gold Price Forecast Update

The past week has seen the UK plunged into mourning over the death two months short of his hundredth birthday of Prince Philip, Duke of Edinburgh.  He had been married to Queen Elizabeth for over 70 years, and one wonders how she will manage without him by her side in her final years as the UK’s head of state.

Also on the negative side there has been something of a surge in U.S. Covid cases, perhaps threatening the nation’s economic recovery.  Maybe some states have been relaxing their Covid-related restrictions too early in favour of trying to restart their economies.  Politicians have an almost impossible job in such circumstances.  They are damned by one or other sector of the populace and the media whichever way they move!

It has also been a somewhat better week for gold  which again tested, and at times exceeded, the $1,750 level, and the team at Canada’s Murenbeeld & Co, consultancy has, as we had predicted, updated its quarterly gold price forecasts up to Q3 2022 in the light of gold’s pretty dismal performance overall so far this year.  Given that gold has underperformed the group’s, and most other positive gold forecasters’, expectations very substantially year to date, we had been anticipating a reworking of the group’s quarterly price prediction scenarios, both in terms of absolute price parameters, and also in the likely weightings, of the three price scenarios the group always uses to predict a median gold price level.  We have not been disappointed in our expectations. 

The Murenbeeld Scenario A is always the bearish one, B is what is considered most likely and C a bullish one and each of these is given a weighting from which a mean gold price forecast is calculated.  We like this approach and in the past it has made the Murenbeeld consultancy one of the more accurate gold price predictors, albeit their forecasts have always tended to be cautious ones which have not necessarily pleased the out-and-out gold bulls out there who are always looking for massive gold price breakouts.  The latest Murenbeeld forecasts are set out in the table below:

 

Note:  These are quarterly average prices so the spot price may be much higher or lower at any given time within the quarter.

Note 2.  These latest predictions allow only a zero factor for the possible positive effects on the gold price of unforeseen geopolitical crises.  Perhaps this will be added in to a subsequent table adding a further $20 or so to the quarterly gold price predictions.

So, at the moment the latest gold price forecast from the Group suggests that it will only average $1,865 in Q4 this year – down from $2,127 in the Group’s first stab at its gold price predictions for the current year made back in January.  That’s a substantial climbdown, but back then gold had been riding high and it certainly looked to be on track for at least a $2,000 year-end price.  Martin Murenbeeld is probably best described as very conservatively bullish on gold and that late January prediction was very much sticking his neck out (for him) and he now looks to have reverted to his more cautiously bullish stance – with which we would very much concur.  Even so, Murenbeeld comments that he still remains ‘quite bullish’.  The terminology is relative!

As we noted above, the past week has been a very much better one for gold.  As Murenbeeld comments in his Group’s latest Gold Monitor newsletter, gold had declined to a new low for the year to date last week before recovering sharply and ending the week in the $1,740s.  The newsletter then goes on to draw parallels with the April to June 2020 period when gold also then tested the $1,750 level as it did again this week.  Back in 2020 it then broke out to hit new highs above $2,000 within a couple of months and the newsletter thus seems to contemplate the possibility of gold following this pattern again – although ignoring the yellow metal’s path between August 2020 and the current day, which has been to say the least generally disappointing for the gold investment community.  This is only an implication, but even so it would tend to contradict to an extent the group’s latest gold forecasts were it to come about.

Part of the reason behind gold’s better performance last week has been comments from U.S. Fed officials, including Fed Chair Jerome Powell, suggesting a continued cautious approach on interest rate and financial easing policies and the accompanying belief that even if interest rates were to rise a little the Fed would view this with equanimity and keep its basic policy unchanged.  This also helped gold recover from a dip on Friday caused by stronger U.S. producer price data slightly raising 10-year Treasury bond yields to which gold tends to move inversely.  The dollar index, to which gold also tends to react inversely, also rose a little on Friday after mostly falling during the week.  Gold did indeed end the week a few dollars off its peak, but well above its intra-day low point.

Murenbeeld’s long-term bullish view of gold follows directly from the following principle.  It assumes the U.S. government would most certainly prefer higher inflation, capped interest rates, and high nominal economic growth (which reduces debt relative to nominal GDP) over the potential of a massive economic reset involving depressionary economic conditions and significantly higher unemployment. Murenbeeld believes avoidance of the latter is also, unsurprisingly, preferable to the Fed.  This ties in with the Fed’s rationale of seeking maximum employment, and is largely, although not hugely, positive for gold which generally thrives in a low to negative interest rate environment.

10 Apr 2021 | Categories: Gold

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