COMMENTARY — The price outlook for gold

We see gold trading between US$360 and US$390 per oz. for the remainder of 1993, and we have used an average price for calendar 1994 of US$370.

Net central bank sales should continue, prices will likely break through their 1993 high of US$406 sometime during 1994, and, if technical analysts are right, additional corrections will occur, while a sustained drop below US$350 is not likely.

— From the research publication “North American Gold Miners,” published by Muzinich & Co. of New York.

It has become evident . . . that most companies have been relatively inactive in the forward markets in recent months. Few producers sold heavily into the previous price spike. Most producers have been unwilling to sell into a rapidly rising market for fear of selling too early if prices move even higher.

The net effect is that few producers have extensive forward sales for 1994. We continue to doubt whether many producers will be large sellers below $US400. This remains a positive factor.

— Analyst John Lydall of First Marathon Securities, writing in a recent issue of his “Metals & Mining Digest.”

The foundations are clearly laid for renewed strength in the market; the major threats to any sustained recovery are accelerated supply from the Official Sector and a resurgence in forward sales from the mining sector. Possible factors which could enhance the outlook are renewed and expanded fiscal problems in the West, with strong reflation taken as the only way out, or a severe banking crisis which generates a run on physical — as opposed to paper — metal.

In the worst case, with paper rallies bringing forth central bank gold and undermining the jewelry sector, the market could just conceivably move back into oversupply, in which case annual averages in 1994 and 1995 should not be expected to exceed US$360 and the prevailing ranges would be of the order of those sustained in 1993.

In the most bullish case, the market would experience severe shortfalls and values should be expected to establish themselves above $US450, with upward moves exacerbated by panic-covering from the mining sector in the early stages.

We believe that the “middle road” of a sustainable, more steady rise in the gold price is the more likely scenario, which leads to our projected average prices of US$390 in 1994 and US$420 in 1995.

— From T. Hoare and Co.’s “Goldbook ’93.”