[miningmx.com] — GOLD guru Martin Murenbeeld – chief economist for Canadian consultancy DundeeWealthEconomics – reckons gold is headed for $2,400/oz, but he’s concerned about a sharp, short-term correction.
In his assessment of the market Murenbeeld said “the gold charts are starting to take on parabolic characteristics which makes a sharp correction possible – and potentially painful.
“The market is now within sight of $2,000 and my view that gold would take out its inflation adjusted high of January 1980 over the long-cycle – that high is approximately $2,400 today – could yet be realised before a major, long-term correction occurs.
“Such a correction was tentatively penned in for about 2013 or thereabouts. On present trends the inflation-adjusted high will be taken out well before 2013.
However, Murenbeeld said nothing goes up in a straight line. “I suspect that there is one hell of a correction to this most recent surge in the not-too-distant future,” he said. “Yet such a correction will likely depend upon policy actions that policymakers are very reluctant to take.
“Meanwhile the crisis is rapidly widening, indeed with a rapidity equal to the steepness of the rise in the gold price. But the policies that would set up such a correction do not appear likely on the near-term horizon. Whatever happens, our medium and long-term outlook remains very bullish.”
Murenbeeld has been remarkably accurate in his predictions on gold over the past five years and, where he has erred, it has been on the side of being too cautious in his projections.
He said: “Gold is well ahead of our projections as we write – more so, in fact, than at any time we can remember.
“This, frankly, makes us nervous. Parabolic price surges – remember silver heading for $50? – are not something with which an economist is particularly comfortable, unlike hedge-fund managers and short-term traders.
“In short, I don’t have a problem with gold at $1,850 or $2,000; I have a problem with the speed at which these levels have been reached.’
The surge in the gold price to present levels from around $1 600 in June has taken place during what is traditionally viewed as a “quiet’ period for the gold market.
Northern hemisphere traders go on leave while physical demand for the metal from major consumers in countries like India only picks up from September ahead of the wedding season and festivals like Diwali.
That demand has already blasted off, according to GFMS CEO Paul Walker, who is currently in Chennai, India.
Interviewed by Miningmx, Walker described the level of gold buying he was witnessing as “unbelievable”.
“I have visited about eight big jewellery stores so far and you battle to get inside them because of the queues of customers out the doors.
“The Indians are buying gold because they expect the price to continue going up and it’s becoming a self-perpetuating cycle. There appears to be a lot of front-running with customers buying gold ahead of weddings scheduled for next year, not just this year.”
Asked how long he believed this could last Walker replied, “I think gold is going to continue to go up until such time as there is absolute clarity that we are through the worst of the financial crisis and investors believe it is over.
“India imported a record 600 tonnes of gold on a net basis in the first half of the year. You are looking at record import levels for the year as a whole which is a massive underpinning to the global gold market.
“The purchase of gold is relentless. Indian demand looks even more important than purchases of gold by central banks.”
INFLATION PRESSURES
Murenbeeld identified “on-going inflation pressures in India and China -the two largest gold markets in the world’ as important factors alongside the financial crises in Europe and the US.
He pointed out that “confidence in US policy is low and, were the US to re-enter a recession there is little doubt the Fed would initiate a QE3 (third round of quantitative easing).
“Furthermore, the weaker the US economy becomes, the more likely the US will resort to currency devaluation and protectionism. That will further enhance interest in gold.”
Turning to Europe, Murenbeeld said “the Eurozone has entered a very dangerous period”.
He believed European debt markets and the markets for European bank equity would have to be “patient” in reaching a workable solution.
“That is the Achilles heel of this crisis. If those markets refuse to be patient – and going by the chronic selling of bank shares in Europe these markets are not very patient – then another crisis is not far away.
“Gold will then rise further and equity markets will tank,” he said.
Murenbeeld’s latest “wide risk range” on what the gold price could do is from $1 650 to $2,100 “in keeping with the large moves gold has posted in recent weeks.’
