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Dr. Martin Murenbeeld, chief economist for Dundee Wealth Economics
and one of the smartest gold minds around, outlines below his nine bullish arguments for gold.
This article is an edited ([ ]) and revised (…) version of the original to ensure a faster & easier read.
1. Global fiscal and monetary reflation –
The world’s major economies have taken on extensive amounts of debt to keep their economies afloat…[and] the U.S. has spent hundreds of billions of dollars in stimulus money and is still losing jobs.
2. Global imbalances –
The dollar has benefited from the troubles in other countries in its role as a relative safe haven. “Relative” is the key word…[as] trillions of dollars are expected to be added to the U.S. federal debt burden through 2019 and the U.S. trade imbalances are huge. These trends stand to weigh on the dollar and support gold’s safe haven status over the longer term.
3. Global foreign exchange reserves are “excessive” –
Global foreign exchange reserves have expanded exponentially in just the past few years… Meanwhile, the gold reserve ratio has dropped significantly since 1980.
4. Central bank attitudes to gold –
Under the current central bank selling agreement, only the International Monetary Fund has been a seller of gold…[with countries such as China, India and Russia continuing to buy gold in large quantities].
5. Gold is not in a bubble –
Gold’s run has been slow and steady. We are not seeing large price spikes that are typical with bubbles…A key difference today is that we’re seeing greater affluence in the developing world, where people have traditionally turned to gold to store their wealth.
6. Mine supply is flat –
World mine production is about 2,500 metric tons—roughly 25 percent higher than it was in 1990—but net mine supply is less than it was 20 years ago. Dehedging, increased scrap supply, lower grade discoveries and higher replacement costs will continue to constrain supply…
7. Investment demand –
Investment demand…[continues to grow].
8. Commodity price cycle –
Commodity price cycles tend to last multiple decades. Going back to 1800, the shortest gold cycle is 10 years and shortest copper cycle is 14 years. The current bull cycle began in 2001.
9. Geopolitical environment –
Historically, gold has performed well in times of political and financial turmoil. Gold hit an all-time high (inflation adjusted) in 1980 amid the Iran hostage crisis and the Soviet invasion of Afghanistan. Today’s geopolitical climate is also volatile given the ongoing wars in Iraq and Afghanistan and the pursuit of nuclear arms by Iran and North Korea.
Conclusion
With the above 9 factors, Dr. Murenbeeld makes a strong bullish case for gold and others seem to agree. [Editor’s Note: Murenbeeld, himself, is one of 75 analysts (see here for complete list) who believes gold will go as high as $5,000 or higher having predicted that gold will go to between $3,100 and $7,000 by the time gold reaches its parabolic peak price.]
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