Marktausblick

Merrill Lynch substantially raises gold prices forecast

High gold prices, supported by supply and demand fundamentals, has prompted Merrill Lynch analysts Monday to substantially increase gold price forecasts to an annual average of $1,000/oz by 2009.

RENO, NV - 

Citing broadening investor demand, a weak U.S. dollar, record oil prices and ongoing geopolitical tension, Merrill Lynch Monday substantially raised their 2008-2012 gold forecasts, while also predicting increased silver prices.

Research analysts Michael Jalonen and Jeffrey Schok said they expect gold to average $925/oz this year and $1,000/oz in 2009 (up from $750/oz and $800/oz respectively). They raised the long-term gold price forecast from $600/oz to $650/oz, beginning in 2013. "Due to higher forecasts for the 2008-2012 period, our 10-year average gold price has jumped from $655 to $800/oz," they said.

"Notwithstanding the possibility of short-term strength in the US$, higher gold prices should be supported by positive supply-demand fundamentals including stagnant mine production and robust jewellery demand in emerging markets, in our opinion."

ML also made significant increases in EPS and CFPS forecasts for all North American gold producers under the broker's coverage. The companies with the largest EPS changes included Gammon Gold, Gold Star Resources and Centerra. The smallest changes to 2008 EPS forecasts are generally drawn from the lowest cost producers including Goldcorp, Yamana Gold, and Royal Gold.

The analysts also changed net assets values (NAV) for both North American gold and silver producers, based on upgraded gold and silver price assumptions. The gold producers reporting the largest change in estimated NAVs include Kinross, Centerra, and Golden Star. "The main drivers for the above average sensitivity to gold prices changes include higher than average cash costs and/or substantial reserve and resource positions which become economic at higher gold prices," according to Jalonen and Schok.

Gold Supply/Demand

"Looking ahead, we expect global mine production to be effectively stable in 2008, chiefly as a result of lower than anticipated supply from new mines and lower grades at maturing operations," they wrote. "Thereafter we are forecasting volumes to increase in 2009, 2010 and 2011 with average annual growth over this relatively short period of expansion at around 2%. Given extended delays in mine development reported across the sector, however, this may present a somewhat optimistic outlook."

Nevertheless, ML added that they don't anticipate that future gold production will be the historic high of 2,645 tonnes achieved in 2001. "The decline in global output from 2011 onwards is chiefly due to ore depletion at operating mines (defined as mines in production in 2007. Mine closures begin to have an impact in 2009, with losses accelerating from 2012."

Merrill Lynch's research identified France, Switzerland and the ECB to be the main central bank gold sellers from 2007-2009. The Netherlands, Sweden, Germany and Australia are expected to have smaller disposals.

"Given the projected shortfall from the 500 tonne maximum, it is possible that the ECB could accelerate disposals," the analysts suggested, adding that a less likely scenario would involve sales to benefit the IMF.

ML also forecast that producer de-hedging will slow this year. "The accelerated run down in the hedge book has, of course, had a noticeable impact on the delivery profit of the book. We estimate that producer de-hedging lowered supply/enhanced demand by 410 tonnes in 2007. With only a few companies left with meaningful hedge books, we see producer de-hedging declining to roughly 120 tonnes in 2008 (and lower in subsequent years."

Silver Supply/Demand

Noting that the spot silver price has averaged $16.07/oz year-to-date 2008, Merrill Lynch raised its 2008, 2009, and 2010 silver price forecasts from $14, $13 and $12/oz to $15.50, $16.50, and $17/oz respectively. "We are also revising upwards our long-term silver price forecast from $10.00/oz to $10.50/oz.

The analysts forecast that mine production will account for 71% of total silver supply in 2007, as a new generation of silver mines commences production. "For 2008, we are forecasting a 5% increase in YOY mine output to 675 million ounces as several new mines ramp up (San Cristobal and San Bartolome in Bolivia, Palmerejo, Alamo Dorado, Ocampo and Delores in Mexico), and Manatial Espejo in Argentina. Looming in the future is the giant Pascua mine ion Chile."

Based on gold prices of $900/oz and $16.75/oz silver, Merrill Lynch estimated the current gold: silver ratio at around 54 times (or 54 ounces silver for every ounce of gold).

Update - Jan 1 2008:

Bloomberg News

Gold to Pass Record in 2008 on Inflation, Survey Says

Danielle Rossingh and Claudia Carpenter
December 28, 2007
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a30mKd0xw0AA

Article Excerpts:

Dec. 28 (Bloomberg) -- Gold will rise to a record in 2008, increasing for an unprecedented eighth consecutive year, as investors seek protection from accelerating inflation, metals analysts say.

Gold rose as record oil prices drove up inflation, and supplies from South Africa, the world's biggest producer, dropped to the lowest in 84 years. Mounting losses in credit markets tied to subprime mortgage loans spurred demand for alternatives to stocks and bonds, while the dollar's drop to a record against a basket of trade-weighted currencies boosted investor interest in commodities.

Investment demand for gold may ``easily'' rise to 500 tons, worth about $13 billion, compared with 384 tons last year, said Philip Klapwijk, chairman of London-based research company GFMS Ltd.

"I do see gold hitting a new high at some point in the first half,'' said UBS AG's John Reade, who is tied as the most- accurate analyst in the London Bullion Market Association's 2007 gold-price forecast.

Prices may reach $1,500, surpassing the all-time high of $850 set in 1980, said GoldMoney.com founder James Turk.

``Demand for gold as a safe haven won't disappear, even if the economy picks up,'' said Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Hanau, Germany-based metals refiner Heraeus Metallhandels GmbH.

Continued...

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http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a30mKd0xw0AA

2008 Forbes Investment Guide

Latin Mining Via Toronto

Kerry A. Dolan
12.10.07
http://www.forbes.com/free_forbes/2007/1210/144.html

It's boom time for metal miners. The prices of gold, silver and copper have been on a tear over the past few years. No region has benefited more than Latin America, home to some of the most prodigious metal and mineral riches on the planet. Mining companies' stock down there has surged.

But you can still get in on this boom. You have to assume that metal prices will continue to escalate, of course, or production must be strong to meet undiminished appetites. The way in is via shares in Canadian miners now starting operations in Latin America. They're still affordable, albeit risky (see table).

The forces at work to fuel this: demand from torridly developing India and China; depletion of mines in places like the Democratic Republic of Congo and Zambia; and stricter environmental reviews in developed nations, lengthening the time and cost of getting new operations under way.

Existing mines run by Latin companies have done very well. As copper prices quadrupled since 2002 to a recent $3.15 a pound, revenues at Codelco in Chile, the world's biggest copper miner, grew fivefold to $17.1 billion last year, while mining output expanded by only 10%. The price of gold has climbed 150% over the past five years to $805 a troy ounce; revenue for Yanacocha in northern Peru, South America's largest gold mine, tripled between 2002 and 2006 to $1.6 billion. Silver has tripled since 2002 to $15 a troy ounce.

Continued...

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http://www.forbes.com/free_forbes/2007/1210/144.html

RBC Capital Markets

RBC Capital Markets Expects Strong 2006 Finish for Gold

and Remains Positive on Long-term View

November 8, 2006
http://www.rbccm.com/0,,cid-25899_,00.html

LONDON, November 8, 2006 - RBC Capital Markets, the corporate and investment banking arm of Royal Bank of Canada (RY on TSX and NYSE), has issued a research report that focuses on the long-term bull cycle for gold that is expected to continue to the end of this decade.

Anchored by fundamental and macro-economic factors - including a positive gold supply-demand balance, good technical outlook and a weak US dollar - the current environment for gold is well supported for the long-term. In addition, gold's growing relevance as an alternative asset continues to attract strong investor appetite, further strengthening the investment case.

Stephen D. Walker, Director of Global Mining Research at RBC Capital Markets commented: "RBC Capital Markets remains bullish on gold and gold equities for the long-term, and our report identifies the key factors that we believe support the asset's positive outlook. We are also very proud to host a conference that brings together the world's leading gold companies, for a forum rich with ideas and discussion about one of the most important assets in the world."

Continued...

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http://www.rbccm.com/0,,cid-25899_,00.html

Swiss America

Who Expects Four-Digit Gold?
Over forty economists finally agree on something

Dec 4, 2007
By David Bradshaw, Editor RMP
http://www.swissamerica.com/article.php?art=04-2006/200604240205f.txt

JP MORGAN CHASE & CO, Third largest U.S. bank
"Gold may rise to more than $1,000 an ounce as demand from India, China and exchange traded funds increases and production of precious metal falls." -Bloomberg 6-7-07

DAVID ROSENBERG, Economist, Merrill Lynch
"The current bull market for gold could last another five years, if certain conditions are in place, and the metal's price could soar to an incredible $1,500/oz. Investors should buy gold to beat the current period of stagflation." , -Platts , 4-11-07

DAVID DAVIS, Analyst, Credit Suisse
"The gold price will soar to more than $1,000 per ounce over the next five years as dwindling supply of the precious metal combines with increased demand. Upward pressure on the price of gold is being driven by the economic environment surrounding the US economy and a change in the supply and demand dynamics surrounding gold." -London Telegraph, 11-1-07

JOHN HILL and GRAHAM WARK, Citibank analysts
"A'Reflationary Rescue', in a new cycle of global credit creation and competititive currency devaluations could take gold to $1,000 an ounce, or higher. Central banks have been forced to choose between global recession or sacrificing control of gold, and have chosen the perceived lesser of two evils." -London Telegraph, 10-1-07.

Continued...

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http://www.swissamerica.com/article.php?art=04-2006/200604240205f.txt

Washington Post

Gold Jumps As Dollar Weakens Versus Euro

By LAUREN VILLAGRAN
The Associated Press
Tuesday, December 4, 2007; 4:06 PM
http://www.foxnews.com/wires/2007Dec04/0%2C4670%2CCommoditiesReview%2C00.html

NEW YORK -- Gold prices bolted back above $800 an ounce on Tuesday as stock prices slipped and the U.S. dollar resumed its decline against the euro, making precious metals more attractive as an investment alternative.

Analysts have been predicting that the gold market will see increased volatility in December, as investment funds tinker with portfolios to puff up shareholder returns before year end.

An ounce of gold for February delivery jumped $12.90 to settle at $807.60 on the New York Mercantile Exchange.

Continued...

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http://www.foxnews.com/wires/2007Dec04/0%2C4670%2CCommoditiesReview%2C00.html

Financial Post

Gold moves higher on dollar's slump, $850 eyed

Atul Prakash, Reuters
Published: Friday, November 09, 2007
http://today.reuters.com/news/articleinvesting.aspx

LONDON, Nov 9 (Reuters) - Gold gained on Friday, with investors keen to drive the metal to a record high of $850 as the dollar tumbled to an all-time low and oil rallied.

Investment funds were eager to buy gold, with the dollar's outlook turning weaker as expectations mounted for more interest rate cuts after a downbeat economic forecast by Federal Reserve Chairman Ben Bernanke the previous day.

"The market is following the dollar and people are waiting for gold to hit $850 an ounce. Sentiment is still bullish as the market expects more cuts in U.S. interest rates and further weakness in the dollar," said Michael Blumenroth, metals trader at Deutsche Bank.

Continued...

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http://today.reuters.com/news/articleinvesting.aspx

The Economic Times

India, China to drive demand for gold

22 Nov, 2007, 0600 hrs IST, TNN
http://economictimes.indiatimes.com//Markets/Bullion/India_China_to_drive_demand_for_gold/articleshow/2560813.cms

MUMBAI: The 'supercycle' that gold is currently undergoing is likely to sustain if Indian and Chinese demand continues at the same pace, says Alan Heap, MD, Citigroup Investment Research on the sidelines of the conference of London Bullion Markets Association (LBMA) in Mumbai.

“The demand and supply situation in gold is extremely constrained,” he said. The current bull-run in gold has lasted 7 for years, from $255 per ounce levels in 2001, to 28-year highs of $845 reached in November. Spot gold in New York is trading at $780 levels currently. A 'supercycle' is a prolonged trend in commodity prices lasting a decade or more.

Continued...

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http://economictimes.indiatimes.com//Markets/Bullion/India_China_to_drive_demand_for_gold/articleshow/2560813.cms

Bloomberg

China Gold Jewelry Demand Surges, Races Ahead of U.S.

By Feiwen Rong
Dec. 4, 2007
http://www.bloomberg.com/apps/news?pid=20601089&sid=aebnOfVPblHE&refer=china

Gold use in jewelry in China jumped 24 percent from a year earlier to 221 metric tons in the first nine months, GFMS analyst Veronica Han said by phone from Beijing yesterday, citing data compiled for the World Gold Council. That compares with 515 tons in India, the biggest consumer, and 165 tons in the U.S.

Increased jewelry purchases by consumers in China and India, the world's fastest-growing major economies, may help to support the price of gold, which reached a 27-year high of $845.84 an ounce on Nov. 7 and is headed for its seventh annual gain.

``More economic development in China and a relatively higher savings ratio than that of India should in the long-term drive gold demand in China,'' Stephan Schlatter, executive director for metals markets in Asia at UBS AG, said.

Continued...

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http://www.bloomberg.com/apps/news?pid=20601089&sid=aebnOfVPblHE&refer=china

Financial Times

Commodities

By Elaine Moore
December 7, 2007
http://www.ft.com/cms/s/2/35ef8f4e-a2fe-11dc-b229-0000779fd2ac.html

Stock market volatility, the weakness of the US dollar and concerns over inflation helped push the gold price to $845 an ounce in November, its highest level in 28 years. Traders and industry executives are forecasting that gold prices will exceed this next year. Some even see a price tag of $1,000 an ounce as a distinct possibility.

Continued...

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http://www.ft.com/cms/s/2/35ef8f4e-a2fe-11dc-b229-0000779fd2ac.html