Murenbeeld ‘mildly bullish’ on gold in 2014

Martin Murenbeeld, chief economist at Dundee Capital Markets, says he’s “mildly bullish” about this year’s gold price.

Murenbeeld began his talk at the recent Prospectors & Developers Association of Canada (PDAC) convention in Toronto by saying he had expected the gold price would close 2013 higher than it did. Instead gold ended last year at US$1,205 per oz., below his estimate of US$1,600.

Murenbeeld blamed the miss on the amount of gold that exchange-traded funds (ETFs) sold last year. ETFs supplied 881 tonnes of physical gold to the market, which depressed the gold price, he says.

“We have 881 tonnes of gold coming on the market. The price is going to go down if all else is equal.”

He explains that hedge funds sold more gold through ETFs last year and moved into the S&P 500 Index, as seen by the negative correlation between the two.

Examining who was buying the gold, he points to China, explaining the Chinese had record buying levels last year, which is an encouraging sign for gold. 

This year, Murenbeeld expects ETF gold sales will be lower. “In fact, if you push me, I would say I don’t think we are going to see any ETF supply this year.”

Another reason to be bullish on gold is because Asia is getting richer, he notes, which will boost its demand for gold and other metals.

Keeping with his bullish arguments, Murenbeeld added that the gold price tends to surge as geopolitical risks increase. Looking at past crises, he notes that the gold price doubled in 1980 when Iran took U.S. hostages, and it gained US$70 per oz. when the U.S. invaded Iraq.

More recently, the spot price of gold jumped nearly US$22 per oz. on March 3, after Russia’s invasion of Ukraine’s Crimea region. 

On the flip side, Murenbeeld says some bearish factors for gold include global economy’s  sluggishness.

Also hindering the gold price, among other factors, is a stronger U.S. dollar, which has been climbing since 2011. But Murenbeeld says the U.S. dollar is “fundamentally overvalued,” and “that we are in a short-run rise in the dollar within a long-run decline in the dollar.”

He forecasts gold will average US$1,320 per oz. this year, above last year’s close and his earlier estimate of US$1,245 per oz.