Gold analysts bullish despite weak price to begin 1992

Gold began the New Year on a bearish note, shedding US$2 to US$350.50 on reports that Russia will end the state monopoly on mining and open up ground for prospecting.

The newly founded republic says it will allow regions to issue exploration permits, opening up a vast area of previously state-controlled ground to individuals and companies. The recently dissolved Soviet Union, including Russia, was the third largest gold producer in the world in 1990. Meanwhile, Shearson Lehman Brothers says a gold rally is “a real possibility” in early 1992. The investment house is calling for a trading range of US$360-US$425 per oz. during the year.

“A favorable medium-term outlook for gold prices is based primarily on the removal of negatives rather than on the strong emergence of positives,” says Shearson. The disappearing negatives include overstated gold reserve estimates for the Soviet Union and high interest rates in the U.S. Down the road, Shearson expects inflationary expectations resulting from signs of recovery in the U.S. to be bullish for gold.

Peter Cavelti, also citing the elimination of “major negatives” in his Gold Mines Report, Jan. 1, believes 1992 will be a turning point for gold and gold mining shares.

“1992 should be a watershed year for bullion and finally bring to an end the 12-year bear market in which gold has been caught.”

On the supply side, Cavelti stresses that Western mine production is unlikely to grow in 1992, Soviet reserves have shrunk to minimal levels after aggressive selling in 1990-91, and productivity at Soviet mines is in decline.