Murenbeeld & Co.

Outlook for Gold

Conference call with Martin Murenbeeld

In Dr Martin Murenbeeld’s analysis of the precious metal, bullish factors outweighed bearish factors. These include massive fiscal and monetary policy expansion in response to the coronavirus induced recession. Global debt levels are rising fast which will keep real interest rates very low or even negative for an indefinite period. The dollar is overvalued as seen from various trade and analytical studies, for example, the Peterson Institute for International Economics, suggestive of a move down in the dollar which is bullish gold given that most of the time the dollar is negatively correlated with gold. Geopolitical and trade crises clearly support gold and are increasingly a fact of life, US-China tensions will no doubt rise significantly for example. Martin pointed out that whilst these factors don’t necessarily fundamentally raise the price of gold for long periods, they have the effect of raising the average price over the course of a year. Central banks, primarily China and Russia are continuing to buy more gold. This dynamic together with Mine supply contracting, as seen from trends in R&D, will boost the gold price also. The bearish factors were less in number and included the dollar continuing to rise, investors being drawn back to equity markets and declining consumer demand in China and India who combined account for rover 50% of global consumer demand. On the last point it was noted they are both trending lower but this is being offset by investors gold ETF purchases. Martin opined that government has two choices – one bullish for gold the other bearish. The bullish option is the most likely according to Martin and that is to boost growth with expansive monetary and fiscal policies resulting in inflation, devaluation and financial repression. The second choice faced by governments is to shift to more policy austerity with higher taxes and cuts to entitlements resulting in creative destruction through depression, deflation and default. Finally Martin set out three scenarios for the gold price outlook; The bear case, with a 10% probability, results in gold averaging $1562 next year. His base case, with a 65% probability, averages $1914. And if everything goes right for gold, probability 25%, $2199. Editor’s note, and from a purely parochial perspective, Martin reminded us of “Browns Bottom” - the selling of the UK’s gold at its lowest ratio to financial assets. Something he advised against at the time.