-Jack Farchy - The Globe and Mail
The gold market is revving up to reach new record highs in excess of $2,000 (U.S.) an ounce in the next year, according to the average forecast of bankers, traders and investors at the gold industry’s largest annual gathering.
The bullish prediction, if correct, suggests that the gold bull market remains intact, despite having already gained almost 30 per cent this year and 600 per cent over the past decade.
The widespread optimism at the London Bullion Market Association conference in Montreal, the largest gathering of the gold industry, comes as the gold market has been transformed from a backwater dominated by jewellery demand to one of the hottest investment assets.
The conference, which enjoyed a record attendance in excess of 500, predicted that gold would be trading at $2,019 an ounce at the time of next year’s meeting in November 2012. That would mark a fresh nominal record for gold, although it is still below the inflation-adjusted peak touched in 1980, which translates to more than $2,400 in today’s money.
The delegates at the LBMA conference have a strong record of predicting the trajectory of the gold price, although their forecasts have traditionally been overcautious. Last year, with gold trading at $1,298 an ounce, the conference predicted a price of $1,450. On Tuesday, bullion was trading at $1,805.70, down from a record peak of $1,920 in early September.
The forecasts, if accurate, bode well for hedge fund managers such as John Paulson of Paulson & Co and David Einhorn of Greenlight Capital, who bought gold in the financial crisis as a means of betting that governments and central banks would fail to safeguard their economies from the market turmoil.
Many hedge fund investors believe a sharp appreciation in the gold price is likely as they expect the eurozone debt crisis to deepen.
Despite the optimistic price predictions, traders were wary of growing volatility in the gold market, which has experienced some of the sharpest swings on record in recent weeks. Asked whether the market was in a bubble, 39 per cent of the traditionally bullish audience replied that it was. A growing number expect the market to accelerate in the next year or two and peak above $2,500.
“We expect to see $2,500 some time in the next 12 months,” said Som Seif, chief executive of Claymore Investments, a Canadian asset manager.
The most bullish forecast came from Pierre Lassonde, chairman of Franco-Nevada , who predicted that gold would reach parity with the Dow Jones industrial average index, at present trading at 11,400, within the next four to six years. “This bull market is far from over,” said Mr. Lassonde, whose predictions are optimistic even by the standards of market bulls.
A drop below $1,600 an ounce could mark the end of the rally for the next few months, traders believe – although many expect demand from Asian investors and central banks to prop up prices above that level.
Mr. Lassonde said: “I think there’s going to be a strong correction at some point and it’s going to set up the last phase that will take the market to numbers that few people can imagine.”
The bullish sentiment has been underpinned by the strength of demand for coins and small bars from retail investors from Germany to China.
Steven Nathan, marketing director at the Rand Refinery in South Africa, said that sales of the popular gold krugerrand coin were at a record level: “Demand is insatiable. It’s the strongest period ever right now.”
A comparable surge in demand was reported by other mints, refiners and coin dealers. “I just can’t see the price coming down,” said one senior precious metals banker. “Physical demand is incredibly strong.”
