Gold Optimistic

Speaking on a Mineweb podcast this week, precious metals guru and Gold Money founder James Turk, reiterated his forecast of a US$1800 gold price in the near future. True it hasn't come about by the end of this year, but he feels it is only a matter of time and is confident that it will happen sooner rather than later. Now he reckons it should do so during the first quarter of next year as he notes that this is normally a strong period for gold and that there are a lot of fundamentals working in gold's favour at the moment which will drive it there. He still also feels that it is possible that gold could still hit $1500 by the end of this year in the short trading time available before the year-end.

On the fundamentals affecting the price at the moment Turk points to the burgeoning demand from China which is, he says, "importing so much gold now that even though the world's largest gold miner, the demand domestically is exceeding domestic production for the first time in quite some time, so as a consequence that's a major factor still rippling its way through the gold market". With the run up to the Chinese New Year, which this year starts quite early on February 3rd, Chinese demand is probably still rising and as we noted in an article here yesterday anecdotal evidence suggests that, if anything, the big surge in Chinese consumption apparent from the recent World Gold Council statistics which showed a huge increase in gold imports this year, is accelerating rather than diminishing.

The recent rises in commodity prices are also seen as a sign that serious inflation lies ahead, as does the sovereign debt crisis and the moves major Central Banks are taking to try and ward off recession and even financial collapse. Turk feels these are a sign of hyper-inflation to come - perhaps not on a Zimbabwean or Weimar Republic scale - but certainly in double digit figures. The Chinese purchasing s put down to inflation fears - and inflation is already rising there quite sharply and people see gold as some kind of protection - and as inflation builds in the West the same pattern could materialise.

On investor psychology and sentiment: "Sentiment is indeed very important and I follow that quite closely and as you know every bull market has three stages." Says Turk. "During the first stage you get apathy and neglect - very few people are paying attention. That's the stage that gold was in for most of this decade. It was up nine years in a row against the US dollar - double digit rates of appreciation against all of the world's major currencies and few people were paying attention, but when it went over $1,000 an ounce; that was a wake-up call. Gold went into its second stage an in the second stage more and more investors are starting to pay attention to gold - they are starting to pay attention because of other things that are happening and other asset classes which is the point that you were making but the third stage which is the speculative stage is still way in the future". He points to late 1979, early 1980 as what could happen in a true speculative stage of price advance, when the gold price tripled in a six-month period - although after that it crashed back so timing would be key were history to repeat itself.

Overall Turk sees demand for gold remaining strong virtually everywhere. Europe has seen a very sharp move into gold from big investors - particularly in Germany and Austria with the feeling that the European Central Bank is effectively debasing the Euro through its own QE programmes. Some Central Banks are increasing their gold holdings; gold purchasing in traditional buying areas like the Middle East and India seems to be on the up again with higher prices now gaining acceptance; and purchasing from what is effectively a relatively new market - China - beginning to have a significant impact on global demand.

"Wherever the monetary problems arise", Turk concluded, "that's where the demand flows from and there are so many different hot spots around the world in terms of potential monetary problems that you are going to see gold demand strong pretty much globally.

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