Thank you Capt. Obvious!
Posted on 02/05/2009 12:55:21 AM PST by TigerLikesRooster
Gold prices could hit $1,500, fears Merrill Lynch CIO
By Shashank Shekhar on Tuesday, February 03, 2009
Gold prices may hit $1,500 (Dh5,509) an ounce in the next 12 to 15 months, Gary Dugan, the Chief Investment Officer (CIO) of Merrill Lynch, said yesterday.
Dugan termed his apprehensions of gold striking such a high as a "fear" that may come true. He reasoned that such a price would mean the other commodities and streams of investments have been shunned by investors.
With confidence in currencies shaken to the core, the yellow metal is increasingly assuming the role of "the most trusted currency", Dugan said. "We have never seen such a rush to buy gold. It's bringing in security and it's still affordable."
Merrill Lynch commodity price forecast authored by Dugan showed that gold prices can rise from the currently prevailing $913/oz to $1,100/oz in the first quarter of 2009 and to $1,150/oz in the second quarter. "While demand for gold has been rising production has been declining. South Africa, which accounts for the major share of global gold production, is facing political issues and has energy problems," Dugan said.
With reports of declining returns from other investment options, "cash" – keeping money safe in banks and investing in government bonds – is the option in front of investors, Dugan said.
"Fear" and eventual decline of the greenback are the two factors that will drive gold prices, he said. While commodity markets could also bounce back in the first half of the year, a rebound is likely to be short-lived in the absence of strong US consumer demand.
Precious metals, led by gold, could enjoy a more sustained rally with gold benefiting from a weakening of the dollar in the second half of the year, Dugan said.
Dugan said the greenback, which has been strengthening for the past few months, will decline in value by the middle of this year. "That's when people will begin to realise that President Obama's policies are not having the desired impact," he said.
Investors could also look to private equity, which produced strong returns during the downturns in 1991 and 2001, on an opportunistic basis. Some hedge fund strategies may be worth following but hedge funds should be treated with caution, Dugan said.
Returns from private equity should remain in single digits in 2009 and a return of beyond 10 per cent should be treated as "fair value", he said. "Investors should remain cautious. They need to be prepared to take profits. We think any such rally would run out of steam by the second half of the year."
Low risk assets could offer private investors the best prospects of attractive returns in 2009 as the world's leading industrialised nations face recession, Dugan said. With governments around the world striving to tackle the economic crisis, private investors could find value in a cautious approach towards asset allocation. Options include high-grade corporate bonds and high-quality, high-yielding equities in defensive industries.
"Investors will look to long-term US government bonds as an important barometer of the progress of global recovery," said Dugan. "Sharply rising bond yields will show that the governments have overspent."
While earnings downgrades are likely to dominate the first quarter of 2009, a rally in global equity markets could be on the cards for the first half of the year with consumer and cyclical stocks among the potential beneficiaries, Dugan said.
Broad equities indices could also offer trading opportunities to private investors. "Equities could outperform as an asset class in 2009 unless there is a serious deflation risk. Our view is that deflation will be avoided," he added.
Selective investment in high-grade corporate bonds could also provide attractive returns, Dugan said.
anyone around for the Hunt brothers?....
I certainly do not “fear $1,500 gold. :-)
My only complaint with the article is that his target price is far too low.
I doubt it. I think it’s a couple hundred dollars an ounce too high now. It’s almost as high as platinum. In fact, a while back, you could buy an ounce of gold for the same price as an ounce of platinum. That makes no sense.
I doubt it.
Not even 1979?
Or is Mr. Dugan too young to remember 1979?
.
You should go to CSPAN and watch the testimony before the House finance committee today of Harry Markopolis regarding the Madoff case.
It's an eye opener.
Here are the Open Interest contracts at the Comex for the next few months.
NB: Each contract is 100 ounces of gold
Feb 3619 300,000 ounces or so, won’t break the bank...
Mar 1067
Apr 230,753
May 48,512
So April and May add up to almost THIRTY MILLION OUNCES.
In a good week, Comex might be able to scrape up six million ounces.
The same exact thing is happening with silver, with over 250 MILLION OUNCES of silver contracts coming due.
They have been playing this game, selling paper stuff and profiting off of it by price controls, and rolling forward when it’s not profitable.
The gig is up.
What do you expect to see happen to gold and silver prices by, say, June or July as a result?
They will plummet.
How can they not?
You see, if some schmuck like you or I were to write a contract and say we’ll sell Arnold 500 sheep, but we only have three sheep, our butts would be behind bars. That’s fraud. Period.
Unless we happen to have an office on Wall Street.
Then it’s “economic stimulus” or some other such bullshit.
Pump and dump?
ΜΟΛΩΝ ΛΑΒΕ
I am glad someone else thinks so. I keep an eye on the futures as sort of an indicator of the economy in the months ahead, even knowing it can be more of an indicator of the goals of various hedgers and daytraders.
Platinum has ranged from almost equal to about $75 more than gold for nearly a month, if not longer. That seems too narrow a spread and I would like to hear from one of our FReeper experts as to why. How much represents actual value, how much is calculating lower future manufacturing (low auto sales means fewer catalytic converters, for example) and how much is just traders looking for appreciation. But, I see it as platinum is low, not that gold is too high.
For the first time in 35 years, we are not invested in anything except the money market and our credit union. It feels strange and everytime I wince at the lack of growth, I look at the ups and (mostly) downs of the equity and commodity markets and just get a little nauseated. I am waiting for a decent interest rate in CDs, although, in this environment, I don’t want to tie up all our cash, either.
Thank you Capt. Obvious!
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