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Zurich Redux, & A Gold Price Forecast

By: David Bond

-- Posted 22 April, 2007 | |

The Wallace Street Journal


By David Bond, Editor

The Silver Valley Mining Journal


Zurich – Martin Murenbeeld, who hangs his hat in Victoria, B.C. and pens prognostications for Dundee, is a bit like a Swiss train. If by one's watch the Swiss train is a bit late, then you had better take your Patek Philippe into the jeweler for a tune-up, because Swiss trains are never late and they are never early. Neither is Dr. Murenbeeld.


Well, Martin was a tad apologetic in Zurich last week for having missed the 2006 gold price when he called it in March of 2005 by, um, 23 cents, give or take a tuppence, at $604. What lies ahead?: Try a 2007 average price of $680, a year-end closer of $730, and a 2008 average price of $765 – give or take a half-penny or so.


We pestered Murenbeeld after his screed at the Baur au Lac for a silver price forecast, but he does not specialize in the poor man's gold: “Silver will do whatever gold does, but with a much higher Beta factor,” he told us, meaning that silver's bungee cords are extremely taught (aren't they always?) and the whiplash is gonna getcha.


Any more, forecasting the gold (or silver, or platinum or palladium or rhodium) price is just a polite way of stepping around the fact that the United Snakes Dollar, i.e. the Federal Reserve Note and whatever other Monopoly crap passes for US money these days, is just a pile of paper, increasingly suspect in an increasingly savvy world economy. “Trust us” just does not cut it any more when that phrase issues forth from the Treasury or Helicopter Ben. The world would rather have what we refuse anymore to produce: oil, gas, metals, concrete, or competent foreign policy, than our damned promissory interest-bearing dollar notes.


So let's get technical. Here is what Murenbeeld said:


“Current account surpluses held in American dollars by oil-producing nations, an explosion of US dollar reserves in Asia and elsewhere, and a continued softening of the dollar all point to a higher average gold price in 2007 and 2008. The US dollar is over-valued by between 15% and 35%, and it has further to fall. At $2.7 trillion, Asian dollar reserves are excessive. OPEC nations as well have dollar surpluses. Over the long term, gold is still very cheap in terms of dollars and in terms of oil. You could see a $300 to $400 blow-out (above current prices) in gold in the next few years.”


Murenbeeld said a better predictor of gold price bull markets than the oil-to-gold ratio is the quantity of US dollars held in surplus by oil producers. OPEC's current account surplus 3 years ago surpassed the $100-billion level that helped trigger the 1980 gold-price run-up and is forecast to reach $300-billion this year.


Were Asia to follow the European ratio of gold to reserves, Murenbeeld said, Japan would need to purchase 7,200 tonnes of gold and China, 9,100 tonnes – 4,000 tonnes more than now held by all signatories of the Central Bank Gold Agreement. “Obviously, that's not going to happen in my lifetime, but it might not be unreasonable to expect Asian purchases of 500 tonnes per annum,” he said. New factors not present in previous gold bull markets include exchange-traded funds, trading in gold as a “paper asset class” and deregulation of gold ownership and sales in China.


“The shortest previous up-cycle in gold was 10 years, between 1970 and 1980, and we are in just the sixth year of this bull market,” he said. Bull markets in commodities typically see one counter-cyclical year in their midst, and that hasn't happened yet in this market, he said.


Any number of geopolitical factors could trigger a blow-out in metals prices. What would happen if Bush went back on the wagon, f'rinstance? Or fell off?


We would add more quotes, but you already have the picture and already are suicidal, having only that wallet full of Brownspan and Helicopter Ben notes and no physical metal at hand, yes? And we do not wish to contribute to your demise and to a lower hit-count on our website. Must we, even to the faithful, repeat this? Gold's price is constant. It is fixed in the cosmos. It is only the value of the United Snakes Fednote, in terms of gold, that goes up and down. America's Founding Fathers had a stellar idea: fix the US dollar in terms of a weight of silver or gold. But that grand notion died with Andrew Jackson, and the sleazeball bankers have had the run of this place ever since.


What Martin Murenbeeld is politely trying to say is this: That the ounce of gold you could buy for $604 last year is going to cost you $765 next year. There is nothing about this ounce of gold (or silver) that has changed. It is the same element, the same weight. Let's take Martin's analysis a step further. That gallon of gasoline you bought last year for $3 is going to cost you almost $4 next year; apply the same math to a gallon of milk, a loaf of bread,  a cube of butter . . . It means that if there is a benign boss out there who gives you a $2-an-hour raise over your current salary of $10 an hour, you're just breaking even.


Hell of a way to run a country. But here we are.

-- Posted 22 April, 2007 | |

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