In the April 3, 2007 edition of the Portfolio Manager’s Review, David Rosenberg, Merrill Lynch North American Economist, discusses the resurrection of inflation expectations and its potential impact on gold prices. The following two paragraphs are taken from his research...
"We reiterate that gold is in a secular, not merely cyclical, bull market. Indeed, gold formed a very similar bottom formation in 1999 as the S&P 500 did back in 1982. And, if this plays out like other secular bull markets have in the past – emerging markets, bonds, stocks, oil, real estate – then this is a run that can be expected to last at least another five years and ultimately see bullion break the $1,500/oz barrier….
... if gold had merely kept pace with inflation during the past 25 years, the nominal price would have already cleared that $1,500/oz threshold. As we have already seen so far this cycle, gold has proven to be a very successful hedge against deflation ... and inflation fears (which is one reason why it is in a secular bull market)"...
Gold Markets – GFMS "Gold Survey 2007"
…we continue to believe that bullion will trade up to and likely through $700/oz by late April, mid-May. We note that bullion usually weakens into the early summer months (on weaker fabrication demand); thus, we would not be surprised to see bullion back below $650/oz by the end of June.
Last week, GFMS Limited, a global leader in precious metals research, released its "Gold Survey 2007" publication. GFMS noted the potential for the gold market to hit new highs in 2007 and 2008, with the strong likelihood that the average spot price for 2007 will be higher than the record average of $614.50/oz set in 1980 (the year that bullion hit an all-time high of $850/oz)...
The above information has been redacted from the article as it originally appeared in Merrill Lynch's Gold & Precious Metals Weekly April 9, 2007.
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Expert View: From War to Wedding, Why Gold Could Glitter Again
by Mark Cliffe, The IndependentPosted: October 1, 2006
Gold prices have been on a roller-coaster ride in the past few months. Having shot up to over $720 per ounce in May, they dived to less than $560 in June, bounced to over $660 in July, and then slumped back to around $570 in September. This is clearly not a market for the faint-hearted. However, with the commodity clawing its way back to almost $600 over the past two weeks, there are seven reasons why gold could regain its May highs.
1. Seasonal demand. There is a tendency for gold prices to rise at this time of year, which they are now starting to do. One reason for this is the Indian wedding season.
2. Weakness in the dollar. The inverse relationship between gold and the greenback has resurfaced this year, after breaking down late last year… However, we expect the dollar, under the influence of a shrinking interest rate advantage, to fall over the next few months, heading off towards 1.40 to the euro and 2 to sterling.
3. Geopolitical tension. Gold has appealed to some investors as a safe-haven asset in the midst of heightened geopolitical worries…
4. High oil prices. The sharp decline in crude from its August highs, which has been a depressing factor for gold, is also unlikely to persist. The recent absence of supply disruptions cannot be relied upon to continue, and demand is likely to remain firm despite the signs of moderation in US economic growth. In any case, oil producers are hinting that they may cut output to shore up prices if they fall much further from here…
5. Central bank selling is abating. After many years of off- loading their gold reserves, central banks have recently been taking a less negative view. Indeed, there have been reports that some are buying, citing the diversification benefits of holding gold.
6. Institutional demand. Gold is also benefiting from an increase in demand among institutional investors, which are seeking to diversify into commodities as an asset class…
7. Producer "dehedging". Another factor supporting the gold price is that producers themselves are taking a more positive view and reducing the hedging of their future receipts by scaling back forward sales.
All this said, the suddenness of the retreat from the highs recorded in May highlights the risks attached to this bullish view. A sudden loss of investor appetite for risk - perhaps because of resurgent fears of higher US rates (after all, gold does not pay interest) or a steeper-than-expected plunge in US economic activity - is certainly possible.However, while I expect US activity to slow, this is unlikely to turn into recession. With the slowdown will come an easing in inflation fears, and while this won't help investor demand for gold - it has traditionally been seen as an inflation hedge - it should give the Federal Reserve the leeway to bolster both economic activity and investor appetite for risk by cutting rates. If so, gold may shine again.
Mark Cliffe is group chief economist at ING
The above information has been redacted from the article as it originally appeared on Independent.co.uk on October 2, 2006.
Gold prices have been on a roller-coaster ride in the past few months. Having shot up to over $720 per ounce in May, they dived to less than $560 in June, bounced to over $660 in July, and then slumped back to around $570 in September. This is clearly not a market for the faint-hearted. However, with the commodity clawing its way back to almost $600 over the past two weeks, there are seven reasons why gold could regain its May highs.
1. Seasonal demand. There is a tendency for gold prices to rise at this time of year, which they are now starting to do. One reason for this is the Indian wedding season.
2. Weakness in the dollar. The inverse relationship between gold and the greenback has resurfaced this year, after breaking down late last year… However, we expect the dollar, under the influence of a shrinking interest rate advantage, to fall over the next few months, heading off towards 1.40 to the euro and 2 to sterling.
3. Geopolitical tension. Gold has appealed to some investors as a safe-haven asset in the midst of heightened geopolitical worries…
4. High oil prices. The sharp decline in crude from its August highs, which has been a depressing factor for gold, is also unlikely to persist. The recent absence of supply disruptions cannot be relied upon to continue, and demand is likely to remain firm despite the signs of moderation in US economic growth. In any case, oil producers are hinting that they may cut output to shore up prices if they fall much further from here…
5. Central bank selling is abating. After many years of off- loading their gold reserves, central banks have recently been taking a less negative view. Indeed, there have been reports that some are buying, citing the diversification benefits of holding gold.
6. Institutional demand. Gold is also benefiting from an increase in demand among institutional investors, which are seeking to diversify into commodities as an asset class…
7. Producer "dehedging". Another factor supporting the gold price is that producers themselves are taking a more positive view and reducing the hedging of their future receipts by scaling back forward sales.
All this said, the suddenness of the retreat from the highs recorded in May highlights the risks attached to this bullish view. A sudden loss of investor appetite for risk - perhaps because of resurgent fears of higher US rates (after all, gold does not pay interest) or a steeper-than-expected plunge in US economic activity - is certainly possible.However, while I expect US activity to slow, this is unlikely to turn into recession. With the slowdown will come an easing in inflation fears, and while this won't help investor demand for gold - it has traditionally been seen as an inflation hedge - it should give the Federal Reserve the leeway to bolster both economic activity and investor appetite for risk by cutting rates. If so, gold may shine again.
Mark Cliffe is group chief economist at ING
The above information has been redacted from the article as it originally appeared on Independent.co.uk on October 2, 2006.
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