This feature is part of our FREE daily Money Morning email. If you’d like to sign up, please click here: Sign up for Money Morning
Want to know what price gold is going to reach in 2008?
I have the answer. Or, rather, I know a man who knows the answer.
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 TheBullionDesk 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!
Turning to the wider markets…
Enjoying this article? Why not sign up to receive Money Morning FREE every weekday? Just click here: FREE daily Money Morning email
Mixed reaction to ECB’s $500bn
In London, the FTSE 100 gave up early gains as Wall Street opened weake
r, ending the day just one point higher, at 6,279. London stock exchange group topped the FTSE 100 following an upgrade from broker Citigroup. Mortgage banks Northern Rock and Alliance and Leicester were the biggest losers of the day, the former on a downgrade by Moody’s and the latter on fears of a possible downgrade. For a full market report, see: London market close.
On the continent, there was a mixed reaction to the European Central Bank’s allocation of $501bn to ease the credit crisis. The Paris CAC-40 lost 5 points to end the day at 5,509. However, the likes of Merck and Siemens led the DAX-30 25 points higher to a close of 7,850 in Frankfurt.
Across the Atlantic, stocks recovered from a faltering start to close with moderate gains as investors welcomed the ECB’s latest action, along with solid Q4 results from Goldman Sachs. The Dow Jones closed 65 points higher, at 13,232. The tech-rich Nasdaq added 21 points to end the day at 2,596. And the S&P 500 was up 9 points at 1,454.
In Asia, Japan fell for a sixth day straight, closing down 177 points at 15,030. In Hong Kong, the Hang Seng index added 296 points to end the session at 27,029.
Sports Direct blames World Cup failure for profits fall
Crude oil had risen to $90.65 this morning and Brent spot was at $90.86 in London.
Spot gold was last trading at $801.80, down from $802.90 in New York yesterday. Silver had risen to $14.02 and platinum was hovering near its all-time high of $1,519, last trading at $1,516.
In the currency markets, the pound was near at three-month low against the dollar, at 2.0168, and was last trading at 1.4013 against the euro. And the dollar was at 0.6944 against the euro and 112.88 against the Japanese yen.
And in London this morning, Sports Direct announced a 73% fall in first-half profits as the dismal summer and falling consumer confidence hit sales. Net income was £13m, compared to £47m over the same period last year. The company also blamed up to £50m in lost profit for the year as a whole on the England team’s early exit from the World Cup. Shares in Sport Direct fell by as much as 5.5% in early trade.
Finally, our recommended articles for today…
Painful but necessary: how banks rebuild capital
– There are four ways banks can rebuild capital following a crisis. But, whether it’s just the shareholders who lose out – or the economy as a whole – someone’s going to suffer. For more on what banks must do to undo the damage inflicted by recent turmoil, click here: Painful but necessary: how banks rebuild capital
Eight key themes for long-term investment
– It often pays to ignore short-term volatility and focus on the big investment themes. Martin Spring looks at eight trends that you should bear in mind when making investment decisions, plus the stocks and sectors most likely to benefit, here: Eight key themes for long-term investment