Denver (Kitco News) - Although the U.S. dollar is “fundamentally overvalued” and in a long-term downtrend, one prominent economist is expecting gold prices to average $1,335 an ounce in 2015.
Speaking at the 25th Denver Gold Forum, keynote speaker Dr. Martin Murenbeeld, chief economist with Canadian firm, Dundee Capital Markets, outlined his bullish and bearish factors for the gold market in 2014-2015.
Murenbeeld started his presentation by looking at what went wrong in 2013, highlighting an ‘orgy of ETF sales – 881 metric tons – and investors going to equities.' He did note that Chinese gold net imports from Honk Kong set records, which was positive.
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| Dr. Martin Murenbeeld, chief economist at Dundee Capital Markets |
He explained that in 2012, net imports in gold in China totaled 557 tons, by 2013 imports rose to 1158 tons.
In his presentation, Murenbeeld highlighted five key bearish points causing headwinds for gold: the Federal Reserve must inevitably tighten policy, the U.S. dollar will remain firm in 2014-2015, the world economy is sluggish, equity markets will continue to draw investment interest away from gold -- investors still have gold to sell -- and “technicals” remain bearish.
Focusing on the Fed and the end of QE, Murenbeeld said that the Fed balance sheet must inevitably decline and real rates will rise, but he questioned if higher rates will be seen before 2016. He said U.S. real rates rose in 2013, during the ‘taper tantrum’ and gold may have fully discounted rising yields, discounting further Fed actions.
Touching on the U.S. dollar, he said the currency was actually in a long-term downtrend; however, other currencies have been devalued against the dollar.
Murenbeeld also highlighted several bullish points that could help gold prices in 2014-2015, among them: ETF “supplies” that are down dramatically in 2014-2015; Asian physical demand will continue to expand; central banks will continue to buy gold and the global debt crisis will require ongoing monetary reflation.
He also noted global imbalances will remain unresolved until the dollar declines significantly, the commodity cycle will run many more years, geopolitical crises will multiply and the gold price is not ‘expensive’ by normal measures.
On the supply front, Murenbeeld doesn’t see supply reaching the highs of 2013, and he also expects a lower supply from jewelers and investors.
Looking on the demand side, he said the strengthening middle class in China and India are positive trends for the market, despite consumer demand being down from both countries.
He also expects central banks to continue buying gold as other countries will be looking to make a move to become viable reserve currencies.
Global debt is Murenbeeld's big factor for gold. He said there are more entitlements from U.S. Government and "super-aged economies - Japan, Germany and Italy, today. U.S. real growth, as well as in many economies, are in decline.
"To deal with what's coming at us we need to change a lot of stuff," he said. "And it looks like it's going to reflation, and that worries me."
By Alex Létourneau of Kitco News aletourneau@kitco.com
Follow Alex Letourneau @alex_letourneau
