RENO, NV – TD Securities Head of Commodity Strategy, Bart Melek Monday predicted “gold will trade materially above the $1,500/oz mark sometime in the second half of 2011.”
“Despite recent strength and record prices, TDS analysis points to more upside for gold into 2011,” Melek advised.
“Gold has been on a tear for some ten years and we wonder what the future holds for the yellow metal and the precious metals market environment over the shorter and long term, especially now that monetary policy is expected to start shifting towards less accommodation,” he said.
“Concerns over the eventual move toward a higher inflation environment in the western world, rising prices in developing nations, a weak U.S. dollar and investor concerns over the long-term stability of developed world currencies (sovereign debt, competitive currency devaluation concerns and revaluation of the RMB) are just some of the reasons why gold looks good in the coming quarters,” Melek observed.
In his analysis Melek noted, “Investors continue to see the yellow metal as a good way to protect wealth, as the fighting in Libya, Japan’s nuclear crisis and concerns about European debt boosted the probability of inflation, and geopolitical and systemic liability.”
“Given gold’s safe-haven appeal, investors should continue to be attracted to precious metals well into 2011,” Melek suggested. “As testament to investor gold appetite, higher mine production expectations and recent investor physical gold ETF selling has done little to derail the market. COMEX positions remain quite tilted toward the longs and there is growing demand from the Chinese buyers.”
“Inflation concerns, combined with the fact there is virtually no hedging being done by gold producers, makes us quite comfortable with the $1,465/oz forecast for 2011, with quarterly prices peaking at $1,550/oz in Q3, 2011,” he forecast. “Further supporting our view are US dollar concerns and continued central bank gold buying. Central banks became net buyers of gold for the first time in over two decades in 2010.”
“Looking to the long term upside potential, the current $1,460/oz price is still far from historic real dollar high of $2,385/oz (adjusted for inflation, 2010 dollars) reached in January 1980,” said Melek. “TDS expects gold to trade materially above the $1,600/oz. at some time during the second half of 2011.”
However, Melek cautioned, “While TDS is quite bullish on gold for most of this year, we expect prices to start moderating into 2012, as signals the US Fed is close to tightening monetary policy start coming louder and clearer.”
TDS suggests, “Inflation, geopolitical and US dollar risks make gold a good buy over the next few quarters. At the same time, as the world moves into a tightening monetary policy phase, gold price volatilities should move materially higher from current lows.”
“As such, government policies which are seen to reduce production growth is very likely to tighten markets and prices in the near and longer term,” Melek concluded.