The oracle of Denver
The oracle of Denver speaks, and he's usually right
Brendan Ryan
Guru Martin Murenbeeld delivered his annual forecast at last month's Denver Gold Forum, adding his authoritative voice to those predicting gold will top US$500/oz in the coming year.
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For the year ahead Murenbeeld is forecasting a probability-weighted average of $502/oz but adds that "gold could clearly go substantially higher in the event the dollar plunges and monetary reflation comes early. We are split between a mildly bullish and a more aggressively bullish projection. Our high price scenario has been given nearly as much weight as our baseline scenario."
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Murenbeeld says that, up till now, the dollar has been supported by capital inflows from central banks - in particular in Asia. They buy dollars with their own currency to prevent the dollar from falling and their own currencies from rising. Private investors have also bought large amounts of dollars.
According to Murenbeeld: "This support for the dollar cannot continue indefinitely. Be patient. Something is going to break this and the dollar will inevitably have to decline further."
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His bottom-line assessment is that the debt situation is likely to result in monetary reflation, which means higher inflation, which is good for gold
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Murenbeeld stresses that consumer demand for physical gold is rising, despite the higher prices. "I am bullish on India and China. Per capita gold consumption will go up and that's what counts."
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Murenbeeld also believes that Opec countries may use rising "petro dollar" income to buy more gold, which is a politically "neutral" currency
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"The last time Opec had significant surplus petro dollars, gold spiked to a record high in 1980. In 1973-1981 Opec added 270 t gold to its reserves. To bring its gold reserves up to 15%, Opec would have to buy 50m oz, costing $22,5bn. This would not be a hardship now Opec's foreign exchange reserves exceed $200bn."
Financial mail
14 October 2005
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mvh
S Borin