[miningmx.com] — THE gold price seems to be inching its way back towards $1,200 per ounce driven – among other things – by the worries over possible sovereign debt default by Greece.
But the debate over where gold could eventually end up seems to be intensifying and GFMS CEO Paul Walker is emerging increasingly as the big bad bear on gold’s future.
That’s something he denies every time he gets up to make a presentation, as he has just done twice in the past fortnight in Johannesburg where he presented the GFMS 2010 Gold Survey followed by the firm’s 2010 Platinum and Palladium Survey.
Gold Fields CEO Nick Holland is one of many who don’t believe him. “Paul Walker is a gold bear,’ Holland declared flatly during a recent interview with Miningmx.
Walker’s concern over gold – and platinum for that matter – is the current dominance of investment demand for the two metals. He likes to see newly mined production taken up every year by real consumers in the jewellery and industrial sectors.
He told his Johannesburg audience that the gold price could come crashing down if Indian consumers start selling, and investment sentiment turned sour.
Walker also highlighted the negative dangers for the gold price from rising real interest rates which could hit investment demand.
That’s obviously anathema to the out-and-out gold bulls, but now even someone I consider one of the most balanced gold market commentators – Martin Murenbeeld of DundeeWealth Economics – has taken issue with GFMS.
If you have read the 2010 edition of our Rainmakers and Potstirrers, you will know we rate Murenbeeld highly as a methodical gold market commentator.
His views have led him into public clashes with the pro-gold Gata organisation at one extreme, and anti-gold New York University professor “Dr Doom’ Nouriel Roubini at the other.
Murenbeeld has just given a major presentation at the Denver Gold Group’s Zurich Gold Forum. He stressed that GFMS has “almost identical numbers to ours’, despite its concerns over investment demand.
Murenbeeld said: “Were investment demand to wither – a question GFMS has raised so often we are left to conclude they think it will wither – then gold prices would fall significantly, to a point where jewellery demand would take up the slack.
“My guess, based on our scenario analysis, is that jewellery demand would take up the slack with a price in the $800 to $900 range.’
But Murenbeeld continued: “Just so we’re clear on this, our view is that investment demand will remain an important source of demand for the foreseeable future.
He conceded investment demand could be undermined by a number of bearish factors. However, he then queried: “But what are the probabilities of such bearish developments?
“Not high in 2010 certainly. In its latest world outlook, the IMF suggested that most countries should not begin tackling budget deficits until 2011.
“The Fed is also in no hurry to raise interest rates to any level that could potentially damage aggregate demand and employment – the latter being an obvious sign of lingering economic malaise.
“And then there is Greece!’
In a nutshell, Murenbeeld thinks Greece is going to be bailed out, that its problems are long-term and will run into 2011 and 2012 and that “Greece will be joined by other countries over time’.
That’s all good news for gold, but it’s clear that many gold market bulls reckon Murenbeeld is still being too conservative – an issue Murenbeeld addressed head-on in Zurich.
He said: “We did get some questions in Zurich as to why our forecasts were not more bullish. My rebuttal was that we have a 50% probability on gold prices averaging over $1,400 in 2011, which is pretty bullish to me.
“More extreme outcomes, which some readers feel are more likely, seem to us to be stretching the envelope a little.
“In the fullness of this cycle, which may well – as GFMS forecasts indirectly – see some price retrenchment one of these years, we think gold prices will exceed the inflation-adjusted highs of 1980.
“But we cannot see clearly when. Central banks will attempt to rein in their respective governments and will promise – as one Fed governor recently did – not to “print’ money to help solve government debt problems.
“This can hold gold in check. But will the astute investor believe such assurances? Or will he/she decide that gold is a prudent addition to a portfolio – as protection against what central bankers may eventually have to do?
“If the latter, gold investment demand will be robust for years to come and those who worry about investment demand will be proven wrong.’
The “inflation-adjusted gold highs of 1980′ – which was when gold reached $850 – equate to a current gold price of around $2,300.
Let me end with a view on gold from DRDGOLD CEO Niel Pretorius , which I found extremely interesting.
At last week’s DRDGOLD quarterly presentation, I asked him who in their right mind was looking to buy bombed-out South African marginal gold assets like those formerly owned by Pamodzi Gold and DRDGOLD’s own Blyvooruitzicht.
Pretorius answered these were investors, mainly from the East, who were keen on securing direct access to physical gold and uranium.
They wanted exposure to gold unlikely ever to be sold through conventional markets, and they were not too worried about the current high cost of deep-level mining.
They were also prepared to take a far longer view (10 to 20 years) than conventional investors, who were focused on quarterly results.
They viewed gold as a real currency and liked its association in many South African mines with uranium, which they viewed as a strategic mineral.
