Analysts see little hope for gold

The general consensus among analysts these days is that the gold price will remain flat or even drop further in the months to come.

During the week following St. Patrick’s day, March 17, gold fell almost US$9 to a 6-year low of US$338 as Middle East investors called off their trades in favor of Ramadan, the Muslim month of fasting.

At the same time, overwhelming support for President F.W. De Klerk’s reform strategy in South Africa, the world’s largest gold producer, did nothing to bolster the depressed metal.

For many reasons — low inflation, a high U.S. dollar, high interest rates in Europe and Japan, and a host of other options available to investors — gold has lost its investment appeal. Instead, the gold price is becoming almost completely dependent on supply-demand fundamentals.

“Look for more of the same in the gold market, several quarters of flat to weak gold prices,” says Martin Murenbeeld in The Gold Monitor. His opinion is echoed by the many gold analysts who believe it will take an upswing in North America’s economy, and therefore demand, to move the gold price up. A survey of analysts favored a price range of US$330-355 per oz. for the next 3-6 months. Only Carlos Leitao, a Royal Bank analyst, expected gold to rebound as Soviet sales dwindle and supply-demand fundamental improve. In the meantime, gold’s inability to sustain a rally has left most gold producers, with the exception of American Barrick Resources (TSE), LAC Minerals (TSE), Placer Dome (TSE) and Cambior (TSE), severely under-hedged for 1992 and 1993. According to the Canadian Imperial Bank of Commerce, producers have hedged about 36% of 1992 production at an average price of US$406 compared with 50% at US$425 in 1991.

As a result, says Michael Jalonen of Midland Walwyn Research, producers have lowered their expectations and are likely to begin selling forward at prices as low as US$350, effectively capping the price at that level.