The most recent survey by consulting firm Thomson Reuters/GFMS envisions a period of difficulties ahead for gold followed by a possible new price record this year. However, the statistical tracking firm also sees potential for an eventual reversal in the multi-year gold rally. GFMS notes in its Gold Survey 2011- Update 2 that “the report does acknowledge that the gold market is nearing the closing stages of its decade-long bull run and that, once the macroeconomic backdrop changes and investment in gold fades (probably sometime next year), a secular retreat in the price will unfurl.”
The consultancy firm also pointed to the potential for interest rates to finally rise and bring about a higher opportunity cost to holding bullion as we head towards 2013. GMFS does note that while current market metrics are relatively strong, the “fundamentals call for lower gold prices in the long term [in order] to achieve balance.”
In other words, given the gold market’s current surplus of supply over demand, the equation in current prices only makes sense when judged by other (crisis/speculation) metrics. And, even in the investment space GFMS warns, “Not all areas of investment are expected to be buoyant. Official coin and bar investment might continue to grow a fraction, but the implied (investment) figure should swing to net disinvestment ... as a result of Eurozone travails, dollar strength and constrained liquidity."
While the possible upside target was mentioned as “just above the $2,000 mark” no specifics were given as regards the lower end of the potential price scale in gold. Recently, CPM Group — GMFS’ main competitor in the field —forecast a value scale in gold for 2012 of from $1,200 to $1,800 per ounce. CPM’s analyst, Mr. Rohit Savant, was one of three top LBMA price forecasters in gold and platinum for 2011.
Of course, not much of the above matters too much to the world’s gold miners. Fully 80% of them have very high expectations for the yellow metal in 2012. The $2,000 figure is firmly etched in their minds and most of them are making the current year’s business plans based on roughly $1,420 per ounce. The unprecedented disparity between the price of gold and the performance of the very shares whose “stewards” are making such bold predictions did not go unnoticed in the PriceWaterhouseCoopers survey. As everyone knows, a lot of “fallout” has materialized in various places as a result of the addiction to commodity-based wealth. Read this, for a primer on what can go wrong and has done so.
Nearly two thirds of the respondents appear frustrated that mining shares have been lagging so badly at a time when the stuff they produce made almost daily headlines in recent years. Perhaps the ultimate irony in the survey might be the fact that mining firm CEOs are now attributing some of the above underperformance in their stocks to the…advent of gold ETFs – a vehicle that the mining community itself helped create via its trade promotion organization (the World Gold Council) at a time (2004) when gold investment demand was only so-so. The famous line “It’s alive!” from a certain black-and-white horror movie comes to mind…
Jon Nadler is a Senior Metals Analyst at Kitco Metals