Murenbeeld ups his call on gold

Brendan Ryan | Wed, 16 Sep 2009 12:27

[miningmx.com] -- GOLD “guru” Martin Murenbeeld has revised his gold price forecasts upwards for 2009 and 2010 citing changing central bank attitudes and rising investment demand for the metal.

Addressing the Denver Gold Forum being held in Denver, Colorado Murenbeeld described his prior forecasts made at the September 2008 conference as “too bearish” .

He added, “while volatile, gold did the job for investors” in the wake of the global financial crisis which started with the bankruptcy of investment bank Lehman Brothers almost immediately after last year’s Denver Gold Forum.

He said that, since his most recent forecast made on July 3, gold market conditions had swung towards the more bullish of the three econometric models he used to predict future price movements.

Murenbeeld, who is chief economist for Canadian consultancy Dundee Wealth Economics, forecast gold could hit $1,075/oz by the end of the year and average $1,116/oz during 2010.

For his gold price outlook Murenbeeld constructs three price models and allocates probabilities to their outcomes to arrive at a “probability-weighted” forecast for the year ahead.

His probability-weighted forecast on July 3 predicted a price of $960/oz at the end of 2009 and an average of $985/oz for 2010.

Murenbeeld told delegates that his bias had now shifted “in the direction of scenario C” which is the high-end price forecast.

He commented this was because the dollar had fallen more rapidly than expected; central banks and the G-20 nations had complained more vociferously about the US dollar and US monetary and fiscal policy while gold had been mentioned more frequently as an important asset.

In addition, “European Union banks have seemingly decided to sell much less gold,” Murenbeeld said.

He highlighted the changing attitude of central banks to gold and, in particular, the statements being made by the central banks of China, Russia and India.

Murenbeeld pointed out China had just announced it had added 454 tonnes (t) of gold to its reserves bringing them to a total of 1,054t.

“China is destined to diversify its currency reserves into commodities, gold and/or other currencies including the SDR (a basket currency which at this stage only includes the dollar, yen, pound and euro).

“Russia and India have suggested that gold should be part of a new SDR basket. CBGA (central bank gold agreement) signatories are selling less gold because where they do invest the proceeds?

“Central banks have run up large losses and are accordingly rethinking their portfolio strategies. They directly or indirectly fuelled the housing and investment mania around the world.

“Old-line central bankers invested in gold and the treasury bills of the reserve currency country – ‘plan vanilla” stuff – and not toxic paper,” Murenbeeld said.

He also highlighted the continuing strong demand for gold from exchange traded funds (ETFs) which “was surprisingly strong during the depth of the crisis.”

“There are regular announcements of expanded gold market deregulations in Asian countries while new futures markets are opening with some regularity and the number and types of participants allowed on the existing markets is growing.

“There are also new ETFs being introduced in Asian markets. All this is a dramatic reversal from that of 10 to 15 years ago,” Murenbeeld commented.

However, Murenbeeld also highlighted various factors which could adversely affect the gold price and which had been responsible in holding back gold’s move through the $1,000 level.

He commented, “gold is a liquidity of last resort and the financial crisis raised the need for liquidity as exhibited by the COMEX data and GFMS data on the supply of recycled gold. “

Murebeeld also pointed out improving equity markets often dampen enthusiasm to buy gold while dehedging by gold producers has effectively ended. He calculated there were only about 636t of gold left to be dehedged from 2009 onwards.