When we look at gold, we don't have in mind a specific supply/demand balance going forward. It's easy enough to see the supply side. In trying to forecast a price for gold, we tend to run out a 4% per annum contango from the current gold price until we think U.S. interest rate policy will reverse and rates will start to climb. That stage just keeps on moving out -- as it has with Quantitative Easing (QE) 3.
We look at the gold price to forecast earnings, and over the next 6 to 12 months, we'd expect $1,650 at the lower end and, if it breaks through, $1,850-1,900 at the upper end. If accommodative fiscal policies continue globally, it could go significantly higher. But bear in mind that as equity analysts we're trying to forecast earnings, and to do so we want to be as close as possible to where the gold price will be for the next three to six months, even if the range is quite broad. ...
It doesn't do our investors any good if we use a $2,000 gold price for the next six months and it ends up averaging $1,780. It's more meaningful to say we have a positive view around gold. And we do. Considering such accommodative fiscal regimes, very low interest rates globally and central banks buying gold where previously they have been sellers, it's pretty difficult to take a negative view on the gold price over the next 12 to 18 months.
More information can be found online at http://www.goldbullionadvisors.com
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