For the past several years, Ronald-Peter Stoeferle has produced one of the most comprehensive analyses available anywhere of what is happening in the gold sector – firstly under the auspices of Austria’s Erste Bank, and now from the Liechtenstein-based advisory company, Incrementum AG, of which he was one of the founders. Incrementum is an advisor to Erste Bank so this report, the eighth in the series, is based on an original analysis prepared for Erste Group Research entitled Goldreport 2014, but also contains additional information.
This time Ronni Stoeferle has been joined in the preparation of this 94-page long report by his colleague Mark Valek and between them the two analysts have put together a remarkably detailes assessment of what has been going on in the sector, and how gold is likely to perform in the near future.
Firstly one should point out that the report – again entitled In Gold we Trust – while positive in its outlook is not one of those documents put out by the gold mega bulls predicting a $10,000 gold price, but an extremely considered and balanced analysis of gold’s fundamentals and the global factors which contribute to its demand as a monetary metal and tends to disregard most aspects of gold as a commodity. In other words Stoeferle and Valek are very much of the opinion that gold is indeed a monetary metal and the ebbs and flows in the gold price are almost wholly dependent on this aspect.
Stoeferle and Valek open the report’s executive summary thus. “We are currently on a journey to the outer reaches of the monetary universe. We believe that the monetary experiments currently underway will have numerous unintended consequences, the extent of which is difficult to gauge today. Gold, as the antagonist of unbacked paper currencies, remains an excellent hedge against rising price inflation and worst case scenarios.”
First of all, to avoid keeping readers of this article on tenterhooks, there is a general price prediction in this latest report with the authors predicting a fairly conservative 12-month price target of around the US$1,500 level. Longer-term, they expect that a parabolic trend acceleration phase still lies ahead. Suggesting a long-term target of $2,300 to be reached at the end of the cycle. In many ways this suggests the same kind of pattern in the forward performance for the gold price as that suggested in Peter Goodburn’s WaveTrack analysis we published here around a month ago, although using a different methodology and perhaps not predicting quite such a high result at the cycle end, nor the initial fall between now and August.
Indeed the new analysis considers that the gold price is near the end of a long consolidation period. Some clearly positive data and the recent revival of gold mining shares all are seen as suggesting as much with the reports suggesting that the technical picture has been repaired and that a stable bottom has been formed.
Overall though, Stoeferle and Valek reckon that in the course of last year’s price collapse, a lot of technical damage was inflicted and the past months have seen a significant decline in speculative activity in the sector. They feel that the majority of bulls appear to have thrown in the towel and like the fact that the consensus considers the gold bull market over. Gold is now a contrarian investment they reckon – which they see as a definite positive.
So far big injections of capital into the global monetary system have not, contrary to may viewpoints, resulted in significant inflation. Indeed Stoeferle and Valek are not necessarily convinced that, it is by any means certain that inflationary forces will win the race. However, they comment that socio-economic incentives and high indebtedness clearly suggest that in case of doubt, higher inflation rates would be tolerated. Should the inflation trend reverse, they feel, there would be excellent opportunities in inflation sensitive assets like gold, silver and mining equities.
But apart from this there are other positive factors which they feel will ultimately drive the gold price to new highs, although that are relatively non-committal on exactly how long this may take. They point out that the migration of gold demand from West to East is continuing and that the growing importance of Asia’s middle class for gold demand is widely underestimated. Assuming that incomes in China and India will continue to rise, they foresee that gold will inevitably be one of the major beneficiaries.
The last but one main chapter in this latest report looks at gold stocks and their more than dismal performance over the past couple of years. However they now reckon that the sector now clearly exhibits a highly asymmetric risk-reward profile. In the wake of the correction, mining companies have reset their priorities – profitability, capital spending discipline and shareholder value have replaced the maximization of production. Moreover, there is no other sector that investors view with similarly pronounced scepticism which suggests great opportunities should the overall gold price scenario prove accurate.
A glance at the (monetary) history books leads us to a clear conclusion: the fundamental arguments in favor of gold are more convincing than ever. Our outlook for the gold price clearly remains optimistic.
The ongoing consolidation that began in the late summer of 2011 with the all-time high is important for the bull market’s health. The nominal gold price may appear to be still high, but relative to the monetary base it is actually at an all- time low. In our opinion, this is a temporary anomaly, which we regard as an excellent entry opportunity. We have demonstrated that gold remains attractively priced relative to stocks and bonds, but also relative to a number of hard assets. Hence, the gold bubble argument often promoted by pessimists is refuted as well.
Anyone interested in the precious metals sector should view the latest In Gold we Trust report for the wealth of detailed analysis on virtually all aspects of the gold market. It is downloadable from the www.incrementum.li website – direct link, click on: In Gold we Trust 2014 – Incrementum Extended Version – English.
Original summary by Lawrence Williams on Mineweb