The past few days have brought good news for gold investors, as key officials at two major mining companies predicted average gold prices for 2012 that are comfortably above current levels. Does this mean gold is a screaming buy? Not just yet.
On Monday, the CEO Mark Bristow of Randgold Resources (NASDAQ:GOLD) said a favorable balance of supply and demand should support a range of $1,700 to $2,000 per ounce for gold in 2012, with an average price of $1,850. This represents a level about 6.9% above the spot gold price of $1,730 as of mid-day Wednesday.
Bristow cited the industry’s inability to continue producing high-quality reserves, together with rising jewelry demand among Asian consumers and purchases by emerging market central banks, as the primary factors pushing gold prices higher this year.
The head of investor relations at Newmont Mining (NYSE:NEM), John Seaberg, followed Bristow’s bullish forecast on Wednesday with another favorable prediction of his own. Seaberg is looking for an average gold price of $1,800 to $2,000 this year, which would equate to a gain of more than 10% compared to prices in the first six weeks of the year.
Similar to Randgold’s CEO, Seaberg saw demand from central banks and Asian retail investors as being key forces underpinning a higher gold price. He also noted that China’s central bank only holds 2% of its reserves in gold at present, which creates the potential that it will step up its purchases over time.
This week’s comments follow those recently made by Newmont CEO Richard O’Brien that China’s economy will grow 8% to 10% this year, which will fuel continued physical demand from investors and consumers in China.
While company officials certainly have known to make incorrect predictions — O’Brien called for $2,000 gold within six months back in September — these bullish calls from industry leaders certainly paint a positive picture for the metal. Still, a measure of patience may be in order here.
Gold has already gained 13% from its low of late December, thanks in part to the renewed weakness in the U.S. dollar. If any news out of Europe causes the euro to give back some its recent gains – it’s up nearly 5% in the past month, its second-biggest rally since it topped last May — this would obviously be a negative for gold.
U.S. Dollar Index:
This is important right now, since gold is in a shaky technical position even after its recent gains. Consider:
- Gold — using SPDR Gold Trust (NYSE:GLD) as a proxy – remains in a series of lower highs that dates back to early September.
- GLD is trading within striking distance (4.7%) of its 200-day moving average, and the 50-day moving average is barely above the 200-day, setting up a potential “death cross” if gold moves modestly lower here.
- GLD’s recent chart formation is similar to what it printed in early November, just before it sold off.
The bottom line: Gold continues to be a solid long-term bet, especially if you believe the people who are closest to the action. But don’t pounce just yet. A little patience may bring the opportunity to get in at a better price.