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Economist: Gold's Bull Market May Reach $3,000/oz.

Release Date: 
Thursday, March 29, 2012

Gold prices were lower on lower oil prices and a stronger dollar. Gold traded at $1675.30 per ounce at 7:29 a.m. Pacific Time on the New York Spot Market with silver at $32.41 per ounce.

David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc., said the secular bull market in gold could peak at $3,000 per ounce within the current economic cycle of negative real interest rates. "Gold has been in a secular bull market that started about 12 years ago. It's the only asset class…that has been up each and every year for the past 11 years," Rosenberg said.  

"Negative real interest rates are always going to be positive for gold," Rosenberg said. He expects positive interest rates to be years away, particularly given the Fed's pledge of ultra-low rates through 2014 and the likelihood that the Fed will continue to expand its balance sheet to stimulate the economy.

Goldman Sachs stated the price of gold is "too low" relative to real interest rates. "As we look forward, our U.S. economists forecast subdued growth and further easing by the Fed in 2012, which should push the market's expectations of real rates back down near zero basis points and gold prices back to our six-month forecast of $1,840 an ounce," Goldman stated in a research report by its commodities analysts.

"I have a positive view of gold from these levels," said BNP Paribas analyst Anne-Laure Tremblay. "Fundamentals are still supportive and we assume some form of monetary policy accommodation to take place in the United States by mid-year." Strategists at Barclays Capital said, "low interest rates and longer-term inflationary pressures should remain supportive for gold prices."

"Bernanke was highlighting his uncertainty about the sustainability of the recent uptick in the U.S. data," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.

"It is negative for the dollar and positive for expectations on stimulus, both of which should work in the advantage of gold." Friesen expects U.S. data to take a turn for the worse in coming months and the Fed to eventually attempt to stimulate growth through additional monetary easing.

"By holding more gold central banks are insuring themselves against their own profligacy. They print money. The price of gold goes up. And if they hold a lot of the stuff in their vaults, they are the big winners from the rise in price," Matthew Lynn, founder of Strategy Economics, wrote in a research note. "If you can pull it off – and there isn't anything to stop you – that sounds like an easy way to make a living."

 (Source: "Gold extends losses in electronic trading," MarketWatch, March 28, 2012; "PRECIOUS-Gold hovers below $1,680/oz; US data eyed," Reuters, March 28, 2012; "PRECIOUS-Gold extends losses after U.S. data," Reuters, March 28, 2012; "Rosenberg, Paulsen on Gold, U.S. Economy," Bloomberg, March 28, 2012; "Gold Price ‘Too Low': Goldman Sachs," CNBC, March 28, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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