Murenbeeld more bullish on gold (Source: Miningmx)

Brendan Ryan
Posted: Wed, 06 Feb 2008

[miningmx.com] -- GOLD “guru” Martin Murenbeeld – chief economist for DundeeWealth Economics - has turned even more bullish since his last assessment given to the Denver Gold Forum in September.

Murenbeeld now reckons there is a 40% probability that gold will end 2008 at a price above $1,000/oz which is his highest ever call on the metal.

His predictions on gold’s performance over the past three years have been remarkably accurate although his estimates for last year ended up below what actually happened because of gold’s surge over the last three months of 2007.

Murenbeeld had predicted an average price of $674 for 2007 and that the metal would end the year at $707. As of the Denver conference his predictions were bang on but gold then took off to end the year at $836 giving an average of $695 for 2007.

Murenbeeld commented that; “I was bullish on gold but not bullish enough because the sub prime crisis happened then the European Central Bank pumped a whole lot of money into the system. Gold reacts far more quickly to money supply movements than it does to inflation.

“However, like any good economist, if you did not like my previous prediction, well, I’m back for another crack at it,” Murenbeeld quipped.

His latest “probability-weighted” call on the metal is for gold to average $901 during 2008 and end the year at $925. His longer-term forecast is for gold to average $961 during 2009.

Murenbeeld derives his numbers from three models which look at low, middle and high price scenarios for gold to which he allocates probabilities.

His upper-end model for gold this year allocates a 40% probability of the metal averaging $975 during 2008 and ending the year at $1,015. This scenario also predicts an average price of $1,075 for 2009.

Some gold market forecasters would view Murenbeeld’s assessment as conservative but there’s a reason for that.

Murenbeeld believes the gold price may have gotten ahead of itself temporarily and could pull back in the short term. He also argues that, while gold is in a long-term bull trend, it’s possible the metal could retreat for up to a year before resuming the upward trend.

He listed eight factors driving the gold price higher. Some of the key ones are that monetary reflation in under way in various major economies while the US dollar continues to devalue against other world currencies.

Foreign holders of US dollar reserves are looking to diversify their asset bases while Murenbeeld believed that, despite having reached record levels, “gold is cheap.”

He said that, while the US dollar could stabilise or even strengthen against the Euro over the next few months, it was likely to devalue against Asian currencies, in particular the Chinese renmimbi (RMB).

“We have to break our myopic focus on the Euro and look more at the Asian currency complex. Asian countries hold some $3.2 trillion of the $6 trillion worth of US dollar foreign exchange reserves. China alone holds $1.5 trillion.

“That is a key imbalance in the world economy. It should never have been allowed to happen.”

Murenbeeld said Asian currencies were likely to strengthen against the dollar which had important implications for gold because, unlike Europe, Asian countries were large consumers of gold which would become cheaper for them to buy as their currencies strengthened.

Murenbeeld also reckoned these countries would look to diversify their asset base by selling some other dollar reserves and buying other assets such as gold. He believed this was already happening in the OPEC countries which were spending some of their dollar oil revenues on gold .

He believed gold was cheap when the price was looked at in terms of gold’s historic relationship to the price of oil and financial assets as well as in terms of “real” value.

While gold has broken through the $900 level Murenbeeld said that it would have to reach $2,295 to match its 1980 value in real terms when it last peaked at $850.