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INTERVIEW: Bullish Factors Remain Dominant For Gold—Dundee Wealth’s Murenbeeld

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By Terry Wooten

Bullish factors tip the gold balance scale upward as concerns linger on European financial circumstances and on the tenuous U.S. economic recovery, both catalysts for central banks to print more money, according to a chief economist of an investment firm.

Martin Murenbeeld, chief economist of Dundee Wealth Inc., said his firm lays out bullish and bearish scenarios in its analysis of gold prices to see which has the highest probability of fruition. He said it was no surprise that bullish factors have held the balance in recent years.

Murenbeeld participated Wednesday on a panel at the Argyle Executive Forum’s Gold Outlook conference, sponsored by the World Gold Council.  He later spoke to Kitco News on the sidelines of the event.

The number one bullish factor for gold is the degree to which central bankers have had to increase their balance sheets, “forced to print money,” Murenbeeld said. The U.S. did it during the economic crisis of the past three years and the European Central Bank is faced with the same situation, he said.

“That is one of the key issues now in Europe,” Murenbeeld said. “Will or won’t the ECB end up using its balance sheet in support of the debt problems in Europe?”  The ECB has already injected some liquidity, he said.

“The more monetary liquidly you put into the system, the more gold prices rise,” Murenbeeld said. “That is the number one variable in our analysis—the more liquidity in the system, the higher goes the gold price.”

If the U.S. Federal Reserve moves to inject more liquidity at some point through another quantitative easing program, that would also give a boost to gold, he said.

Inflation in emerging markets is the second key bullish factor, Murenbeeld said, noting that Chinese and Indian growth outlooks are especially important for the gold markets. He said there is concern that China’s booming economy over the past few years is slowing down and could be in for a hard landing, which could be negative.

“In the experience of the people I talk to who are close to China, it does not appear that a hard land is on the immediate horizon,”  he said.

There are also global imbalances, he said. The U.S. dollar remains weak and many central banks have excessive reserves and are seeking to diversify investments. Some central banks are buying gold while others that were selling gold are no longer selling. “So there has been a sea change in the central bank arena,” Murenbeeld said.

Deregulation of gold in the Asian markets, China and India in particular, has contributed to the bullish factors, Murenbeeld said.  He said 15 to 20 years ago gold was heavily controlled in the Asian markets. “That is no longer the case and that has opened up the channels of distribution for gold buying in those countries,” Murenbeeld said.

The main bearish scenario for gold would be a recession in the Organization of Economic Cooperation and Development countries, Murenbeeld said. He said this effect could be seen in part by the recent pullback of gold from above $1,900 an ounce to below $1,600.

“The old recession theme started to come back into the market,” he said. “Gold does not do well during recessions. Gold does very well in respect to policies put forward trying to get out of a recession.”