Gold price senarios for 2011 - Murenbeeld

Source:  by Lawrence Williams, 13 April 2011 - Mineweb.com

ZURICH -

The first full day of this year's European Gold Forum, the Denver Gold Group's annual foray to Switzerland, was opened by the outgoing Acting Executive Director, Vicki Veltkamp, introducing the Group's new Executive Director, Tim Wood - founder editor of Mineweb a decade ago. We wish him well in his new post. The event has already seen over 630 registrants - a new record and, of course, a recognition of the seemingly unstoppable upward march in precious metals prices.

And then there was Martin Murenbeeld with his most enjoyable keynote presentation on the gold market in 2011. Each year, Dr Murenbeeld chooses this event to present his views and forecasts for gold for the year ahead, and over the years he has proved to be one of the most accurate forecasters out there - but with three scenarios - cautious, middle and optimistic - he usually comes close with one or more of these - but he does give weighted likelihoods for each of his prediction scenarios.

For 2010 his most optimistic forecast, for which he gave the highest weighting, actually fell short of reality. His year-end prediction for 2010 was $1326 (which did indeed look optimistic a year ago) but was actually exceeded by $84 - still in the right ballpark though and delegates are always interested to see what he predicts for the year ahead - and his forecasts for 2011 (with an early flyer at 2012 average price) were as follows:

MARTIN MURENBEELD'S 2011 GOLD PRICE SCENARIOS

In assessing the likely future of the gold price, Dr. Murenbeeld, came up with 10 bullish arguments (one more than in his assessments in the past) countered by seven bearish arguments which could lead to price falls.

The additional bullish argument over his ones of previous years related to inflation and inflation fears in the big emerging gold markets - notably China and India. This was added on to Global reflationary elements; Global imbalance; Excessive global FX reserves (also notably in China and Japan); Central Banks switching to become gold buyers instead of sellers; the deflation of the 'gold is in a bubble' argument; Mine supply only rising modestly, if at all; Investment demand (from ETFs, China and India in particular); Commodity price cycle - which he feels still has many years to run; and the Geopolitical environment.

On the bearish side he notes Policy exit strategies (a reversal of the high money supply, low interest rate scenario); Possibility of the dollar strengthening against the Euro; Liquidity of last resort (nations with huge debts selling their gold to meet needs); Resolution of the EU debt crisis; Continuing strong rally in equity markets; End to dehedging and possible re-commencement of hedging any gold mining companies; and the possibility of a Chinese recession. Indeed he reckons that if the last of these were to happen coinciding with the first (increased Western interest rates and an end to printing massive injections of money), then this could result in a really big gold price correction. But given the overtone of Dr Murenbeeld's presentation was bullish he obviously does not see these events as likely - at least in the next year or so - but does feel that at some stage a major gold price correction is inevitable, but that this may yet be some years ahead.

Overall though Dr. Murenbeeld obviously believes that governments in democratic nations, which rely on the people to elect them, shy away from harsh decisions on the economy, and without these harsh decisions there can be little likelihood of any end to the ever growing debt treadmill. He pointed to the fact that even those nations which have succumbed to ECB and/or IMF rescue packages have so far still ended up increasing debt well beyond their set target levels. He describes these as pathological borrowers!

He also points to a strong correlation between the path of the gold price and global liquidity and with QE2 in the U.S. and European nations following similar paths, there is no sign of global liquidity reducing in the short term.

He also views global diversification out of the dollar, which is seen as inherently weak, will continue which could be positive for gold. Although he does point to the fact that China, which has the biggest reason of all to re-assess its huge monetary surplus, is moving more towards buying up other hard assets than precious metals as it moves to use the surpluses to protect its long term supplies to feed its ever growing industrial base.

As an economist, Dr Murenbeeld is inclined to hedge his bets, if not his gold. But overall he remains in the bullish camp - although perhaps not a natural gold bull. His predictions have been pretty accurate in the past few years and his relatively cautious approach has proved to be a sensible one.