Guessing Game

Anticipating what gold will do amounts to predicting the future, which is always fraught with risk. But that doesn’t discourage many of gold’s dedicated followers–from distinguished experts and analysts to dedicated aficionados—from going public with their opinions on where gold is headed in the coming year.

Each year Mineweb invites readers to take part in a gold price prediction competition by submitting their best guesses. The London Bullion Market Association (LBMA) also holds an annual forecasting exercise of its own. Comparisons of the two groups reveal the experts to be a tad more pessimistic. Last year only one of LBMA’s panel predicted a high of over $700—the actual 2006 high was $725. This year LBMA average predictions are in the bullish range, topping out at a high of $742, a low of $566 and an average price for the year of $652. So far, entries for the Mineweb competition average $848 for the high, $592 for the low and $716 for the average price.

When the Bank Credit Analyst (BCA) looks at the future of gold, it sees a long-term bull market. This positive picture of an ongoing “uptrend in gold prices” does come with a note of caution, “that investors should wait before buying.” BCA identifies so-called “pillars” of support for its bright outlook on gold including global liquidity, central bank transactions in gold buillion, and demand from the Chinese and Indian private sector. One of the four “pillars,” namely that, “investor demand for gold will rise in response to higher gold prices after an extended bear market” requires more explanation. According to BCA, “the profile of the dollar gold price since early in 2002, when the latest bull market set in, closely shadows the progression of the dollar gold price during the 1970s, the previous gold bull market. The latter developed into a very big bull market indeed, one that many investors refuse to forget.”

Georges Lequime, RBC Capital Markets, shares an equally positive outlook in a recent interview with Mineweb. “ …We think gold is going to move back to that $625, $650 range, and then, before the end of the year, moving towards $700/ounce.” He believes the inherent weakness of the dollar and the strength of Chinese demand for gold will push gold higher.

From Richard Russell’s most recent observations in the Dow Theory Letter, we hear an echo of these sentiments. “I've been watching gold with added interest, because the background for gold is turning increasingly bullish… As I see it, the correction in gold and silver ended last October. Since then, gold has been building a huge base. I believe the base has been completed. I like the gold picture, both technically and fundamentally.”

BMO Financial Group takes a somewhat bearish position and forecasts “the end of the four-year bull run for commodity prices” declaring that “the outlook for commodity prices in 2007 is mixed.”

The ultimate judge of these predictions will be time itself. A year allows plenty of opportunity for unforeseen events to make a big difference in the price of gold.