Why gold could hit $1,100 an ounce this year
I have the answer. Or, rather, I know a man who knows the answer. Probably... The best gold forecaster in town Every year the LBMA - The London Bullion Market Association - holds a gold forecast competition. And there is one outstanding forecaster. He won in 2002, was second in 2003 and 2005. He won in 2006 and is about to win for 2007. The competition works like this: you give your high for the year, your low for the year and your average price for the year. There are about 25-30 participants, from such esteemed institutions as UBS, HSBC, JP Morgan, Standard Bank, Bear Stearns, Standard Bank, Goldman Sachs, Macquarie, Deutsche Bank, Barclays - it reads like a who's who of subprime CDO-exposed banks. Ross Norman founded The Bullion Desk in 1999 with two other former members of the London Bullion Market. In 2005 he guessed a high of $480, a low of $420 and an average of $450. Ross got the low right; the average was $444 (he was $6 off), but there was a spike to $540. In 2006, he was the ONLY analyst of the 25 to predict an average price above $600 - the average was $604 (he guessed $618) - and the ONLY analyst to predict a high above $700. He guessed the low correctly at $520 and predicted a high of $760, when it only made $728. About 2007, he said. "I think gold could hit $850 this year. We are predicting an average price of $700/oz with a spike to $850/oz." He's nailed it again. What world do investment experts live in? What is more amazing to me about Norman's excellent predictions is how wrong so many 'experts' were. Of the 29 asked about 2007, 25 predicted a low in the $500s. Yet gold never went below $600 - and a mere two predicted a high over $800. Indeed, two of these so-called expert analysts predicted a high of $675 and a low of $500-505, with an average price of $580. What on earth were these people thinking? What world are they living in? Can they not see the endless money supply growth around them? More frighteningly still, is clients' money being invested based on their 'analysis'? One thing these awful predictions show is how little the fundamental drivers of the rising gold price are understood. If professionals in banks don't get it, how far off is Joe Bloggs on the street? There is still a long way to go in this bull market. When Kirsty Young starts presenting a programme about investing in gold companies on mainstream TV, that will be the time to start thinking about getting out - and how far off is that? Why gold could hit $1,100 an ounce this year All right then - if I'm so clever, and I 'get it', then what are my gold price predictions for 2008? Here we go. A low of $725, a high of $1,100 on a spike and an average price of $850. No, hang it, $900 average. I can't wait to see Ross Norman's predictions though - and I might well revise mine after I've seen his. Last week, we had that well known advocate of sound money Ben Bernanke cut interest rates. Gold went down. We had some shocking producer price inflation figures. Gold went down. We had some rubbish consumer price inflation numbers. Gold went down. I sometimes wonder if it's me that doesn't get it. I can only suggest that the market still hasn't got to grips yet with $800 gold. People need to believe $800 gold is here to stay before they'll push the price higher. I suspect further consolidation over the coming weeks will be necessary, though gold does tend to creep up higher over Christmas when only the Asian markets are open. When belief in $800 gold becomes more concrete we will see the miners turn back up. Just now it looks like they want to return to their August lows (the juniors are already there), even though gold is a whopping 20% higher. Perhaps, some day over the rainbow, we will see 'experts' (see above) start to value mining companies at current metals prices, instead of at $500 gold. Then we'd see a move. Meanwhile - and make no mistake about it - the junior resource stocks are being absolutely hammered. Many are trading as though gold is below $450 and in a bear market. You need guts of steel, a heart of iron and the resolve of some other metal that is being sold off ridiculously. Canadian tax selling, along with falling appetite for risk, have been in my view the catalysts and now panic has set in. But stick in there - right now, we are seeing a great buying opportunity in Canadian juniors and in January the market will turn up. You can read about some of the stocks I like in my recent cover story for MoneyWeek magazine: Get out of money - and into things. Non-subscribers can get access to this article by signing up for a free three-week trial of MoneyWeek. This is my last column for Money Morning this year - so have a great Christmas and I look forward to having my predictions tested in 2008! ***
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