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Gold guru sees $500/oz average

David McKay | Tue, 27 Sep 2005 17:00
[miningmx.com] -- THE gold price would sustain its current price level, and might even burst through $500/oz during 2006, according to Martin Murenbeeld, an analyst for M Murenbeeld & Associates. Murenbeeld was speaking at the Denver Gold Forum. “There’s a significant probability that gold will average over $500/oz in 2006,” he said.

Murenbeeld is more prescient that most in gold market estimates. He estimated last year that gold was most likely to average $435/oz, $6/oz within the average for the year to date. “We were damn lucky,” he said of his forecast.

Now, however, Murenbeeld said the gold price was most likely to sustain its current level, and might average $502/oz. The key factors in the estimate were continued dollar weakness, increased gold demand in Asian and from Opec, stable mine supply, and government debt that would lead to monetary reflation. Historically, gold was not expensive, he said.

We are split between a mildly bullish and a more aggressively bullish projection

Murenbeeld’s gold price estimations are structured in three scenarios each qualified with a probably rating. “We are split between a mildly bullish and a more aggressively bullish projection,” said Murenbeeld in notes to his presentation. As a result, gold was most likely to average $470/oz (47% weighting), but could average $565/oz (43%).

“At this point we suggest one ‘plans’ on something around $500 for 2006, but gold could clearly go substantially higher in the event the dollar plunges and monetary reflation comes early,” he said.

Notwithstanding the surprising resilience of the dollar, there were a number of pressures that would work to weaken it further including the revaluation of the China renminbi and the current account balance which is forecast to significantly rise. The world’s central banks have been supporting the dollar – to stop their own currencies rising – but this support could not continue indefinitely, Murenbeeld said.

Government debt was likely to increase, which would precipitate inflation, and the printing of more money. Moreover, the coming retirement of the “baby boomer” generation would place unprecedented pressure on government funding. “This is going to cost everyone,” Murenbeeld said. In the case of Germany, government net liabilities would rise to about 216% of gross domestic product in 2030 from 50%.

Against government debt increasing, gold represented insurance. Added to this, Asian and Indian gold expenditures were rising while petro-dollars – the money generated by the rise in the oil price – would be partially diverted into gold holdings as had been demonstrated in the past.

“To bring its gold reserves up to 15% presently Opec would have to purchase some 50 million oz, equal to $22.5bn or 350 million barrels of oil. This would not appear to be a hardship now that Opec's foreign exchange reserves exceed $200bn,” Murenbeeld said.

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Mine supply would remain flat to falling. “But you should not be surprised if mine supply doesn’t fall after all,” he said. This was owing to the long lead times in producing new gold which might occlude the mine supply picture.

There was almost no chance that the signatories to the Washington Agreement would fail to renew the cap on gold sales in 2009, Murenbeeld said.

“Gold is significantly below its average of the last 25 years, when gold prices are converted to today’s currency,” Murenbeeld said. “Gold is not necessarily very expensive once inflation is factored into the picture,” he said.