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Strong supply and demand fundamentals give long-term bullish gold outlook.
By Dave Brown – Exclusive to Gold Investing News
Canadian fund manager Eric Sprott shared a bullish gold outlook for the next 12 months, expecting gold to reach an all time high over $2,000 per troy ounce some time this year, with silver also climbing to a high above $50. This strengthening of spot market prices would imply growth rates of around 20 percent and 64 percent from Wednesday’s valuations when gold traded at $1,658.90 per troy ounce with silver at $30.52.
Steven Butler, Managing Director, Senior Gold Analyst, Canaccord Genuity indicates his optimistic thesis, specifically for gold producers, “we have definitely seen a steady decline in multiples which is the first thing to highlight. Higher commodity prices means lower multiples which is across the board no matter if it is copper, base metals, gold or silver. We do predict lower multiples than we had historically predicted for the gold stocks; however, we still predict some re-rating for the group at large. That is driven by cash flow per share expansion this year which may come with even higher gold prices than we are seeing as well as dividend increases and reserve increases that may come with these higher prices.”
Owen Hegarty, Director at the AusIMM Minerals Institute, explained his outlook for gold as an asset class based on investment attributes “our view is very clear that gold has all the very strong demand attributes: currency, commodity, store of value, safe haven and none of those have stopped.” Under those conditions, “you have strong demand and subdued supply, there is only one thing that can happen to [gold] prices it is going to be under tension.” For a price target on gold, “in the next year or so in terms of forecasting we would not be surprised to see it hit $2,000.”
India looking to improve revenue by increasing gold duty
On Tuesday India increased import taxes on gold by 90 percent and doubled them for silver which initially showed a demonstrative impact on futures prices. The policy transition raises duty on gold to 2 percent of import value from the earlier flat 300 rupees per 10 grams and that of silver to 6 percent of value from 1,500 rupees per kilogram.
History repeats
A similar tax increase of 67 percent in February of 2010 appeared to have a minimal impact on Indian gold consumption. The most recent increase in duty is likely to be passed through to consumers effectively through jewellery purchases. Chirag Mehta, Fund Manager of the Quantum Gold Fund, added this “is not likely to impact demand in any meaningful way; we did not see any meaningful decline in demand last time, and hence may not affect demand this time around as well.”
Gold spot market price weakens
The gold spot market prices moved lower compared with the previous closing price based on soft economic data reported in the United States. First-time jobless claims reported from last week and tame consumer prices in December brought the spot market gold price down approximately 0.4 percent at $1,652.86 per troy ounce. The intraday volatility appeared to initially move higher after well-received Spanish and French bond auctions suppressed concern over the Eurozone debt crisis.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.