Bulls out weight Bears on the price of Gold

Gold prices have further room to rise as more Bullish reasons than Bearish reasons give the precious Yellow metal support, said a leading Canadian economist Sunday.

Martin Murenbeeld, chief economist for DundeeWealth, said his forecast for the average price for Gold in Y 2012 is 1,825 oz, and he sees Gold trading at 1,942 by the end of Y 2012. His Y 2013 average price forecast is 2,145 oz, noting that his price outlook makes no allowance for geopolitics.

He spoke at the PDAC2012, the Prospectors & Developers Association of Canada's annual convention, which takes place from Sunday to Wednesday in Toronto, Canada.

There are 10 Bullish reasons why Gold should go up and 8 bearish reasons why Gold should go down, Mr. Murenbeeld said, which makes him favorable toward the precious Yellow metal.

On the Bullish side, Gold is supported by the following reasons:

1. Monetary reflation as the US Federal Reserve and European Central Bank print money

2. a fundamentally weak USD

3. countries seeking to diversify their currency reserves

4. central bank buying

5. only a slight increase in mine supply

6. investment demand

7. the commodity price cycle remains Bullish

8. Gold is not in a bubble and has room to rise

9. inflation in the emerging markets, and,

10. potential geopolitical conflicts send people back to Gold as a safe haven.

Of all of those reasons, monetary reflation is the most important, Mr. Mureenbeeld said. It is the liquidity that is in the market from ultra-low interest rates from central banks around the World, and the stimulus programs to encourage demand that is giving support to Gold and other markets.

Since Y 2001 when the current long-term Bull market started in Gold, there have been 7 corrections in price that were more than 10%, including when the Global recession hit in Y 2008-09 and last year during the European worries, he said. Yet since the lows reached during the Y 2008-09 recession, when prices fell to the low 700 oz area, Gold prices have rallied to more than double that low mark

He also does not think that Gold's rally is over. Since Y 1800, Gold's shortest rally was 10 yrs. The current Gold Bull Run is just 10 yrs old.

Now, given the influence of the BRIC countries; Brazil, Russia, India and China and the debt problems of western nations, he does not see Gold's rally ending any time soon.

Mr. Murenbeeld cautioned that Gold has some potential drawbacks to its outlook that those who wish to buy the metal should consider. Below are the 8 reasons that may weigh down Gold:

1. The EU recession could lead to fiscal retrenchment and deflation

2. China falls into a recession and commodity demand plunges

3. physical demand weakens because of high prices and weak economic growth

4. the USD strengthens

5. Gold becomes the liquidity of the last resort for cash-strapped countries and investors

6. equity markets vastly improve

7. miners stop de-hedging and begin hedging again

8. and monetary policy changes and real interest rates rise again.

Recessions are price-negative for Gold and commodities in general. When he mentioned the chance of China falling into a recession, he said that means China having growth under 6%.

Also, he said there is talk about governments selling Gold to pay down their debts, including the US selling its Gold reserves to do deal with their debts. That would be the most stupid thing to do. You never sell your Gold when you can print money, he said about the US.

When you need to sell your Gold is when no one wants whatever else you can give them, he added.

After his session at the conference, Mr. Murenbeeld was asked what might happen to Gold if Israel attacked Iran.

He said Gold would rally, much as it did during other politically tense situations. He said there were some media reports that if Israel struck Iran and Iran closed the Strait Hormuz, that Crude Oil prices might spike to 400 bbl. If Crude Oil prices rose to that level, then Gold prices would easily go over 2,000 oz quickly.

That is just a guess, he said. But while it sounds like a sharp rise in the Gold price, he pointed out that while a 500 oz move for Gold, from about 1,700 to about 2,200 sounds like a lot, as a percentage it is not as big as Crude Oil going to 400 from the current 110 bbl it is currently trading at. Stay tuned...

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels. www.livetradingnews.com