Facts vs Fears In 2015 Gold Forecasts

In mainstream media coverage last year, gold was largely either ignored or despised. The winner for most derisive commentary might be Citigroup Chief Economist Willem Buiter, who labeled gold “shiny bitcoin” and said “no bank should hold it in reserves.”

Given the pervasiveness of such views, I feel it’s important to provide some equilibrium. To that end, I’d like to share some other views (and highlights) that marked 2014 yet might have gotten lost in the media-induced haze.

• Jim Rogers, billionaire and cofounder of the Soros Quantum Fund, publicly said he thinks there is going to be financial chaos over the next decade: “It could be a monetary disaster or even war. This turmoil could come from a gigantic debt problem, for instance, which could cause world economies to fall apart as well. Politicians don’t know what to do besides printing money—so that’s what they end up doing. We will see a wave of turmoil from all this that will surely take gold higher.” He confirmed he hadn’t been selling any of his gold.
• Steve Forbes, chairman and editor-in chief of Forbes Media, came out with a candid endorsement of bringing back gold as legal tender: “A weak US dollar is a threat to the global economy and the only way to stop the greenback’s decline is to reintroduce a gold standard.” Forbes said different currency valuation methods have been tried for “more than 4,000 years,” and experience shows that having a gold standard is the way to go.
• Doug Casey says that the real bubble is in the bond market: “[T]he bond market is much bigger than the stock market, so when the bubble in bonds bursts, it’s going to be very ugly. … I’ve bought gold my whole life. I’ve never sold one ounce because I buy it for safety, for savings, prudence, and insurance.” According to Doug, gold is not the giveaway it was in 2001 at $250 an ounce, but it’s reasonably priced, so he continues buying.
• Peter Schiff, founder and CEO of Euro Pacific Capital, confirmed his unwavering confidence in a very bullish outlook for the yellow metal: “Gold is going to go to $5,000 … I’ve had that target in mind for some time … Normally markets take the stairs up and the elevator down. Well, I think that gold is going to take a rocket ship back up.”
• Rick Rule, CEO of Sprott US Holdings, says he sleeps better owning gold than not. “From my point of view we’re simply locked in a war with the US 10-year note. If the dollar strengthens, it weakens gold. If the dollar weakens, it strengthens gold. And I suspect that arithmetically, we’re locked in a war that we can’t help but win.”
• Marc Faber reminds us that while gold has been a miserable performer since 2011, it’s up more than four times since the late 1990: “Gold hasn’t done that badly, it has done actually better than stocks … I’m not a prophet, but I’m telling you I want to own some gold because I don’t trust the financial system anymore.” In answer to a question about Goldman Sachs’ negative outlook on gold, he said, “I would say Goldman Sachs is very good at predicting lower prices when they want to buy something.”
• Jeffrey Gundlach, a bond guru not historically known for being big on gold, publicly stated that he liked gold, and that it was held in good strong hands. “I’m actually sort of fond of gold as a diversifier now,” he said, adding, however, that he isn’t convinced gold will reach $10,000 an ounce. That’s okay; halfway there would do wonders for our portfolios.
• Jim Rickards, economist and best-selling author of Currency Wars, says that his target price for gold is in the range of $7,000 to $9,000 per ounce: “That’s not something that will happen straightaway, but it’s not a 10-year forecast either. It’s a three- to five-year forecast, for the price to rise by about five to six times.” According to Rickards, there are two means to restore confidence: You flood the world with liquidity (highly inflationary), or you return to a gold standard. ”I’ve done the math on that and the non-deflationary price for a gold standard today is about $9,000 per ounce.”
• Ron Paul, the world’s most popular libertarian voice, told CNBC that he “still believes in gold” and that “gold could go to infinity.” “Timing is the only thing. I remember watching gold when it was 35 dollars an ounce and we thought if it ever hit a hundred dollars the world would come to an end. And then a thousand dollars, so no, it’s good as long as we continues to [print money], you know, it could go to infinity because when people just leave the dollar, who knows …”
• David Stockman, Washington insider and author, reckons the gold market could explode at any moment: “I’m not going to even venture a guess as to when that might happen, but clearly it is the asset of final resort when we reach the point where confidence in this whole Ponzi scheme that’s being run by the central banks finally breaks down. It’s almost a sure thing that as we reach the end of this era of massive central bank expansion and domination that the monetary system will break down, the central banks will become totally discredited, and the markets will be in anarchy and dislocation and gold will soar.”

Major commercial banks seem to have largely turned bearish or neutral on gold, but there are some financial contrarians who take a different view:

• Commerzbank analysts see gold bottoming out around $1,125 in Q2 of 2015, but expect the gold price to go up to $1,250 by the end of the year on the back of a cycle of rate hikes in the second quarter. “Once the interest rate hikes are underway, the pressure on the gold price is likely to abate … Gold should then climb, taking support from reviving demand in China and inflows into gold-backed exchange-traded funds.”
• Rosland Capital’s Jeffrey Nichols says that 2015 promises to be a good year for gold investors: “While the near-term price outlook remains uncertain, I feel fairly confident that gold will be considerably higher at this time next year—and on its way to new historic highs in the years ahead.” Nichols expects a substantial correction in stocks, reversing the flow of investment and speculative funds away from stocks and bonds back into gold.
• RBC Capital Markets’ George Gero told CNBC that 2015 is the year that he expects bullion trade to rebound and “shine again.” “I’m looking at $1,300 to $1,400 as a closing price one year from now,” Gero said.
• Incrementum’s Ronald Stoeferle released his gold price model for 2015 and beyond. Based on weighted probabilities, his model shows a long-term gold price of $1,515 per ounce.

Last, there are also the institutions that arguably should be the most in the know about the (un)soundness of paper money, i.e., central banks. Here’s a look at how their net gold purchases in 2014 stacked up by country.

Eastern central banks have added many tonnes of bullion. Global central-bank gold buying outpaced selling elevenfold. Most of the latter was done by cash-strapped Ukraine, which went on a gold selling spree in an attempt to deal with its financial problems. Meanwhile, most other countries were backing up the truck to take advantage of lower prices.

• Russia was shopping in earnest last year, getting its hands on a whopping 55 tonnes in the third quarter alone. With last year’s total addition in excess of 150 tonnes (4.7 million ounces), Russia’s gold reserves now amount to a reported 1,188 tonnes (38.2 million ounces), representing an impressive increase of 14.7% from a year ago. Russia has the fifth-largest holding by a central bank the world.
• Iraq bought 36 tonnes of gold in March alone for a total of close to 48 tonnes (1.5 million ounces) for the year. It’s interesting to note that right before Russians went into full buying mode, the March 2014 purchase by the Central Bank of Iraq was the biggest addition since Mexico bought 78.5 tonnes in March 2011. The reason for buying so much gold? The central bank issued a statement saying it acquired the metal to help stabilize the Iraqi dinar against foreign currencies. Makes sense to us.
• Kazakhstan was buying gold every month through November, with 24.7 tonnes added to its balance sheet in August alone. As a result, the country’s reserves have seen a 30.1% increase to 188 tonnes (6 million ounces) over the last year.
• Mongolia kept silent for the best part of the year but now seems to have upped its gold reserves significantly to 28.8 tonnes (927,000 ounces) as recently as in November. This represents a massive over sixfold increase from 3.9 tonnes (126,000 ounces) from a year ago.
• Turkey’s gold reserves have expanded by 13.2 tonnes (425,000 ounces), partly as a consequence of a policy accepting gold in its reserve requirements from commercial banks. Its gold holdings currently stand at about 533 tonnes (17.1 million ounces).
• Azerbaijan has been taking advantage of a slump in prices in the second half of the year, snapping up roughly 10 tonnes (326,000 ounces) of gold for its vaults. The country’s reserves have grown by 50.6% to 30.2 tonnes from 20 tonnes a year ago. Just two years ago, the country had virtually no gold. Its leaders definitely get it.
• Tajikistan added 4.4 tonnes (142,000 ounces) last year, and at 9.6 tonnes (309,000 ounces) in gold holdings is now carrying 85% more gold on its balance sheet than at the end of 2013.
• Mauritius, a surprising contender in the race to load up on more gold, added 4 tonnes (129,000 ounces) in 2014. As a result, the country’s reserves have seen a 100% increase to 7.9 tonnes (254,000 ounces) from a year ago.

In sum, central banks remained firmly on the buying end in 2014 as far as gold is concerned. Now, all this growth is significant in and of itself, but we’re likely to see it balloon even more once the data for November are released. Add to this the insatiable appetite for gold from India (which incidentally is back to being world’s top gold consumer and now says it’s not planning further curbs on gold imports) and China, and you’ll see why we’re upbeat about future demand.

The takeaway is clear: none of the above parties holds the view that the gold bull market is over.

Fortunately for newcomers, we’re still at the point where we can take advantage of price weakness. But this situation may not last much longer.

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This article was originally published at caseyresearch.com.