The Gold Report
What Will Drive Gold in 2015?
Source: Kip Keen, Mineweb (12/10/14)
"The answers, ranging as they did, belied differing views of what will drive the gold market in the coming year."
The most direct question to Scotiabank's gold panel came from the audience at the end of a wide-ranging discussion of the gold market at the bank's recently held mining conference: where would the price of gold go by the end of 2015?
Most of the panel cringed at the request, but nonetheless made their wagers (or almost so).
Andy Montano, ScotiaMocatta director, went first. "If I give you a forecast, I guarantee you one thing it will be wrong," he said.
Still, he added, "I would say right where we are now."
Next up was Marcus Grubb, the World Gold Council's (WGC) managing director of investment and strategy.
In a way he ducked the question, citing regulatory reasons for not making predictions.
But as usual he was also armed with market stats to give context to the possibilities. He noted that in analyzing the past 12 downturns in the gold price since 1970 - that is where the price drops more than 20% - the WGC found that within 35 months of the price trough gold rebounded 38% to 40%.
"We may be in the trough now," he said.
"Basically you could see $1,500 gold within that time frame."
Looking beyond, gold's average rise over 50-60 months from a trough was 90%, Grubb said. "Well that would put you at $2,000."
That mark offered a more bullish segue for Rob McEwen, McEwen Mining's controling shareholder and Chairman.
"Two grand," he said, meaning the gold price by the end of 2015. Ultimately gold would peak at $5,000/oz, he said.
The final panelist to take the question was Camilla Sutton, Scotiabank's chief currency strategist. She agreed with Montano on gold's overall outlook and guessed the price would land "somewhere between $1,100 and $1,200".
The answers, ranging as they did, belied differing views of what will drive the gold market in the coming year. The more dour assessments by Montano and Sutton were framed by views that inflation had been contained and that the U.S. economy was performing well, offset to some degree by slowing economies such as Japan and the Eurozone.
On the other side of this coin were Grubb and McEwen, less convinced of economic stability and recovery. McEwen contended that money printing exercises like the multiple QE programs the U.S. has taken, and now other countries are taking, never end well.
Further, he suggested inflation was more rampant than official statistics suggest and that the U.S. dollar, despite it's strength, was losing it shine.
"There is a lot of money chaning hands and it's moving out of dollars into assets," he said.
Grubb, too, questioned the strength of the U.S. recovery.
"We think it's weaker than it looks," he said. "And I personally don't think the Fed will get 2% inflation in the next few years. I don't think the economy will deliver that. And they will have to do something to ensure it does."
The panelists also took a closer look under the hood of gold supply and demand. Generally gold positive this.
McEwen noted that most major gold mining CEOs (many of them recently installed) had marching orders to reign in costs. That would drive down mining output.
Meantime, he pointed out that were the price of gold to rise again, gold recycling - unlike in the runup of gold prices 2004-2011 - wouldn't flood the market. Cash for gold shops are going to have a hard time finding customers, he said.
Customers, in the West, sold their gold to the shops, which then, in many cases, ended up in the ETFs. Then this gold went East in the 2013 gold ETF selloff. The current Asian owners may prove stickier.
"That's why I think you could have an explosive environment," said McEwen.
Grubb agreed with McEwen and also noted that ETF selling is not likely to come to bear in the years ahead. To that point, he noted despite gold's price drop, 75% of gold ETF holders are still in the money.
Meantime, Grubb also pointed to strong demand in Asia.
"We add all that up and say this market is fundamentally pretty strongly bid," Grubb said. "The central banks are on the bid too. So the fundamental picture is a lot better than it was in 2013."
Grubb also wondered if the game of gold shorting was more or less up.
"If you put 10,000 contracts in COMEX in 15 minutes in April last year you got several hundred dollars of downside," he said.
"Here you get $20 bucks of downside and by the next day it's probably back up again because of the physical premiums in the East and the demand. As a short you're pushing down on a much more resilient gold market here with the risk you get severely hit on the short if a huge amount of demand comes in."
This worry for shorts was driven home by the end of some import rules in India, which boosted official gold demand in the country, he said.
Conference webcast available here.
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