Gold Analysts Not Expecting Inflation This Year

Below is a chart of gold since 2008 along with the year-end 2009 price targets of 17 gold analysts (from Bloomberg). With gold creeping higher over the last few weeks to its current price of $958/ounce, many investors seem to be positioning themselves for a spike in inflation down the road. But gold analysts collectively have an average year-end price target of $918, which means they don't expect the inflation trade to occur until at least 2010.

Will the analysts be right or will they have to play catch up as gold heads higher?

click to enlarge

Comments

[Kirill:]

The price of gold will keep rising, and it is not only due to inflation which might kick in at the end of the year or beginning of 2010.
It is due to higher demand from China for gold, energy and other base metals.

May 23 01:10 PM

[Dave Wrixon:]

Time to explain the concept of money.

Barter is a system where an exchange rate is set between commodity pairs.

2 sheep for a Goat, 3 Goats for a Cow, 2 Cows for a Horse.

So how many Sheep for a Horse? You can see it can start to get complicated the more commodities you introduce and the more the exchange rates fluctuate due to supply and demand factors. That is why money was invented. It was essential to have a arbitrary datum to compare things against. So money was invented.

But the problem was having a reliable system of accountability. It was not possible have paper money in those days, so to ensure there was no cheating something that could not be copied but was portable and non-perishable was required. That something also had to have universal confidence. Gold fitted the Bill admirably primarily because not only did it meet the above criteria but its supply could not fluctuate wildly. Well not until the Spanish discovered South America and the British found Gold in the Cape.

However, things have developed since then. Essential, it is sovereign nations that decide what money is and what it is not and they decide to some extent on how it can be exchanged between systems. For a while it was convenient to carry on with the pretense that everything was backed by Gold but that has really been nonsense for centuries. The value of paper money has always been related to the ability and the confidence that issuer will redeem it promised. That is as true today as when the Bank of England was first established. In todays World paper money has been substantially replaced by electronic accounting. The paper money we have can be thought of the petty cash tin, if you like.

The bottom line is Gold is not money, and it never will be again, unless there is some kind of global technological breakdown through war or disease or some natural disaster like an asteroid collision; and the World reverts to a pre-Babylonian level of development. Of course there are strong arguments that money should be backed by something tangible rather than the worthless promises of politicians, but there are better candidates that Gold. The obvious candidates are forms of energy which are needed by us all in our everyday lives and are required for the means of production. Energy is a major determinant of our economic development, is easy to account, impossible to emulate and relevant to all our needs, whether the basic reference is barrels of crude or units of electricity.

So lets get away from this ludicrous notion that Gold is again going to circulate as physical money or act as the main backing for currency. It is not an never will be. My own personal view is that Fiat Money is going to be around for a long time even if there is a catastrophic collapse of the US dollar, which I consider to be almost inevitable given the current political environment. However, even if I am wrong it will not be Gold that supplant paper money.

Now if some of you want to have a rational discussion about Gold as a commodity, which is probably just about where we are at current pricing levels then I would be very interested to know how its price can be predicted going forward. But if you going to talk about Gold as money then I am afraid, I for one will just dismiss you as part of a lunatic fringe.


On May 23 11:16 AM Francis Schutte wrote:

> Gold will not go up, it NEVER goes up...it is only the real value
> of fiat paper money which is going down. As we have Quantitative
> easing all over the world, GOLD will go up expressed in ALL FIAT
> CURRENCIES.
> Gold is produced for accumulation and not for consumption because
> over time it keeps its value. Nothimg more, nothing less.

May 23 01:19 PM

[Vuke:]

David:

You see a collapse in the dollar yet reject gold? And you call me part of the lunatic fringe?

Most goldbugs believe that the paper value of that house or car will still equal the same number of ounces of gold when wheelbarrows of paper money are required for their purchase. Few envisage the passing around of gold coins in commerce. They're too heavy in the pocket.

David Wrixen wrote:
My own personal view is that Fiat Money is going to be around for a long time even if there is a catastrophic
> collapse of the US dollar, which I consider to be almost inevitable
> given the current political environment. However, even if I am wrong
> it will not be Gold that supplant paper money.
> But if you going to talk about Gold as money then I am afraid, I for one will just dismiss you as part of a lunatic fringe.

May 23 02:25 PM

[nobby73:]

Analysts have similar views across all commodities, as far as I can tell. I've experienced this group think for years where they only look at one side of the equation, which is the supply/ demand dynamics of the commodity, and ignore the supply/demand dynamics of money.

May 23 02:51 PM

[Mayascribe:]

Dave: If gold is not considered money, then why do I have a $20.00 American Eagle gold piece (that's worth more than $20.00)?

I agree with your premise that gold will never "supplant" paper money for the basic and impractical reason that gold is too heavy to carry around; dividing out a small enough piece of gold to buy bubble gum or put put into a vending machine would be a near impossible task, as the price of gold varies greatly from one period of time to then next, e.g. gold then, is not a practical form of currency, and never will be, but it has value, and value, by definition, translates into money.

May 23 03:03 PM

[Gold Barron:]

Not very many anylysts predicted a 50% drop in the stockmarket either. Nor did they predict an over 300% appreciation in gold in the past 10 years. Dont listen to analysts!

If their will be inflation in 2010, then thats exactly the reason to buy gold now. Be ahead of the curver...not behind it!

May 23 06:23 PM

[Windsun33:]

That is basically true. An ounce of gold now will buy approximately the same as it did 10, 20, or even 50 years ago. What has changed is the value of the dollar. While there is some price fluctuation in gold - due to jewelery demand (or right now, the lack of it) and such, it is basically a hedge against monopoly money.


On May 23 11:16 AM Francis Schutte wrote:

> Gold will not go up, it NEVER goes up...it is only the real value
> of fiat paper money which is going down.

May 23 08:26 PM

[auel:]

it is impossible to tell the price of gold 6 months from now, so to trade based on such predictions is no better than gambling. Same is true for USD and for any single market. I have become more and more convinced that long-term investing is of the highest risk vs mid- or short-term. What's the point investing in 'value' and going all ups and downs with the market? Unless you are a bank, of course. Value translates into money... hmm. But into what money? Gold goes up because of what? You have to conduct a whole bunch of intermarket analysis just to 'see' correlations, which are also changing continuosly. Market value is not the same as the value, but it's the market value that we are after, aren't we? It's timing what makes or breaks the profitability, timing that is based on intermarket analysis. If we utilize such a tool that calculates intermarket correlations and interdependence on a day-to-day basis and then analize impact of those correlations on a particular single market, day-to-day, timing in that single market (or whole portfolio) becomes a better art than gambling. So, for my capital money, I won't gamble, no long-term forecasts. For my 'gambling' money, I might use some kind of that.

May 23 09:21 PM

[curious cat:]

money has something in common with the law. it is what people say it is. in this respect, there is a lot more concensus on gold. in all of recorded history, no one has turned down gold, but i have read many stories about dollars that make me have some doubts about their future.

who knows what a dollar is worth, if they can simply print as many as they want? oh, i know who, those people who are buying our bonds (ie our promises to make good in dollars). let's see what they think and let's see what they are buying instead of dollars, now.

May 23 10:27 PM

[Dave Wrixon:]

Well, I would only accept dollars to the extent that I am already committed to spend them. When your cost are in dollars it is not so bad. Making an electronic payment in physical gold is a bit more of a challenge.


On May 23 02:25 PM Vuke wrote:

> David:
>
> You see a collapse in the dollar yet reject gold? And you call me
> part of the lunatic fringe?
>
> Most goldbugs believe that the paper value of that house or car will
> still equal the same number of ounces of gold when wheelbarrows of
> paper money are required for their purchase. Few envisage the passing
> around of gold coins in commerce. They're too heavy in the pocket.
>
>
> David Wrixen wrote:
> My own personal view is that Fiat Money is going to be around for
> a long time even if there is a catastrophic

May 24 01:42 AM

[Dave Wrixon:]

What you guys really need to do to convince those that do think you are off your rockers is explain how this wonderful Gold Money system would work into todays economy. You need to take each category of money ranging from paper bill to credit card debt and explain how that would be replaced or simply scrapped in your new Gold Money system. Then we need to go back in our time capsule to get back to an example of a successful money system that remotely resembles what you are describing. Frankly most of what happened in the 20th century was like a Fiat Gold system. The money was never backed by Gold in any meaningful sense. So we are likely to have to travel back a lot longer than most of you think. Once we have made such benchmark, you need then to explain how such a system would cope with the social, industrial and technological developments since that time. If you can do that convincingly, then I am all ears.


On May 23 10:27 PM curious cat wrote:

> money has something in common with the law. it is what people say
> it is. in this respect, there is a lot more concensus on gold.
> in all of recorded history, no one has turned down gold, but i have
> read many stories about dollars that make me have some doubts about
> their future.
>
> who knows what a dollar is worth, if they can simply print as many
> as they want? oh, i know who, those people who are buying our
> bonds (ie our promises to make good in dollars). let's see what
> they think and let's see what they are buying instead of dollars,
> now.

May 24 01:51 AM

[Dave Wrixon:]

Agreed, but the same is true of most commodities.


On May 23 08:26 PM Windsun33 wrote:

> That is basically true. An ounce of gold now will buy approximately
> the same as it did 10, 20, or even 50 years ago. What has changed
> is the value of the dollar. While there is some price fluctuation
> in gold - due to jewelery demand (or right now, the lack of it) and
> such, it is basically a hedge against monopoly money.

May 24 02:27 AM

[Mr. Ed, Jr.:]

Interesting how certain some commentors are about what will or will not happen, considering this is the most uncertain and unstable financial situation in the history of the world.

Black swans may already have taken flight.

May 24 03:22 AM

[Carlos Lam:]

On May 23 08:31 AM Roger Knights wrote:

> However, they don't think outside the box and envisage the effect
> of a crash in the dollar on the gold price.

Exactly correct re: gold analysts. I do not blame them, though. It is very difficult to track supply & demand and ALSO predict what will occur in the forex market. I would never have thought, for example, that the USD would be a safe haven during the latter part of '08 given Chmn. Bernanke's prior statements, the federal government's huge debt, and the perpetual deficits that were on the radar.

May 24 06:18 AM

[praha1:]

I see you've spent a great deal of time studying gold - your thorough understanding is remarkable


On May 23 02:50 AM Dave Wrixon wrote:

> Gold will go up, but only against the dollar. The dollar will plummet
> as the inflation beast raises it head. Against other currencies I
> don't see Gold making sustained gains. Gold is hardly even keeping
> up with other commodities. Gold is not money. It hasn't been money
> for a long time and won't ever be money again. As commodities go,
> it is not exactly the most crucial. It goes into electronics, but
> my guess is that the amount required will decline rather than rise.
> As for jewelry, the trend seems to be toward White Gold which is
> where Gold is treated like a base metal and the electroplated or
> alternatives such as Platinum, Titanium and Palladium.

May 24 11:06 PM

[wheelbarrel...:]

Huh so how do you explain how gold has gone up against the Euro and pound for the last 10 years?

On May 23 01:19 PM Dave Wrixon wrote:

> Time to explain the concept of money.
>
> Barter is a system where an exchange rate is set between commodity
> pairs.
>
> 2 sheep for a Goat, 3 Goats for a Cow, 2 Cows for a Horse.
>
> So how many Sheep for a Horse? You can see it can start to get complicated
> the more commodities you introduce and the more the exchange rates
> fluctuate due to supply and demand factors. That is why money was
> invented. It was essential to have a arbitrary datum to compare things
> against. So money was invented.
>
> But the problem was having a reliable system of accountability. It
> was not possible have paper money in those days, so to ensure there
> was no cheating something that could not be copied but was portable
> and non-perishable was required. That something also had to have
> universal confidence. Gold fitted the Bill admirably primarily because
> not only did it meet the above criteria but its supply could not
> fluctuate wildly. Well not until the Spanish discovered South America
> and the British found Gold in the Cape.
>
> However, things have developed since then. Essential, it is sovereign
> nations that decide what money is and what it is not and they decide
> to some extent on how it can be exchanged between systems. For a
> while it was convenient to carry on with the pretense that everything
> was backed by Gold but that has really been nonsense for centuries.
> The value of paper money has always been related to the ability and
> the confidence that issuer will redeem it promised. That is as true
> today as when the Bank of England was first established. In todays
> World paper money has been substantially replaced by electronic accounting.
> The paper money we have can be thought of the petty cash tin, if
> you like.
>
> The bottom line is Gold is not money, and it never will be again,
> unless there is some kind of global technological breakdown through
> war or disease or some natural disaster like an asteroid collision;
> and the World reverts to a pre-Babylonian level of development. Of
> course there are strong arguments that money should be backed by
> something tangible rather than the worthless promises of politicians,
> but there are better candidates that Gold. The obvious candidates
> are forms of energy which are needed by us all in our everyday lives
> and are required for the means of production. Energy is a major determinant
> of our economic development, is easy to account, impossible to emulate
> and relevant to all our needs, whether the basic reference is barrels
> of crude or units of electricity.
>
> So lets get away from this ludicrous notion that Gold is again going
> to circulate as physical money or act as the main backing for currency.
> It is not an never will be. My own personal view is that Fiat Money
> is going to be around for a long time even if there is a catastrophic
> collapse of the US dollar, which I consider to be almost inevitable
> given the current political environment. However, even if I am wrong
> it will not be Gold that supplant paper money.
>
> Now if some of you want to have a rational discussion about Gold
> as a commodity, which is probably just about where we are at current
> pricing levels then I would be very interested to know how its price
> can be predicted going forward. But if you going to talk about Gold
> as money then I am afraid, I for one will just dismiss you as part
> of a lunatic fringe.

May 25 12:10 PM

[Dave Wrixon:]

Well that just highlights the distinction between Gold's role as Money and Commodity. Its monetary worth in this situation is $20 although that value could just as easily have been represented by a piece of plastic. Of course as you point out its value as a Commodity is very very much greater. But really this just goes to underline my point.

Of course all commodities could be evaluated for their suitability as the basis for a Monetary System. Gold would be closed to the top of list, as it is one of the few that has a track record. However, it would seem doubtful that any commodity is going to circulate as physical money. I also have severe reservation about the concept of backing currency with a commodity even Energy. What backs a currency is the integrity of issuing authority and its ability to make good on its promise to pay. This at the end of the day is purely a function of the integrity of its politicians, its power to raise taxes which is a function of economic strength and its level of indebtedness. If you take the case of the US, it fails miserably on all three counts and the size of Gold Reserves does not really have a material impact on its credibility.


On May 23 03:03 PM Mayascribe wrote:

> Dave: If gold is not considered money, then why do I have a $20.00
> American Eagle gold piece (that's worth more than $20.00)?
>
> I agree with your premise that gold will never "supplant" paper money
> for the basic and impractical reason that gold is too heavy to carry
> around; dividing out a small enough piece of gold to buy bubble gum
> or put put into a vending machine would be a near impossible task,
> as the price of gold varies greatly from one period of time to then
> next, e.g. gold then, is not a practical form of currency, and never
> will be, but it has value, and value, by definition, translates into
> money.
>
>
>

May 26 04:34 AM

[Dave Wrixon:]

Just in the same way that other commodities do. Supply and demand and general depreciation of currency of time due to inflation of the money system. All Fiat currency now have an inflation target of around 2% whether explicity stated or not. It is therefore a fact of life that everything is going to get more expensive as time goes on. Such a progression is indeed essential as it removes natural wastage from the system and provides a modest forward momentum to the economy. This is nothing to lose sleep over. Where the problem come is when Governments deliberately fudge the economic statistics so they can report excessive inflation as growth when all that is really happening is the entirely economy is being mortgaged ultimately resulting in the collapse of the currency. With the US we are now in the final phase.


On May 25 12:10 PM wheelbarrelsofcash wrote:

>
> Huh so how do you explain how gold has gone up against the Euro and
> pound for the last 10 years?
>
> On May 23 01:19 PM Dave Wrixon wrote:

May 26 04:40 AM

[F. Bradeen:]

What good are these analyst's predictions if I don't know how well their previous predictions did. I need to know their batting average. Otherwise your analysis is worthless.

May 26 07:16 AM

[DmytrenkoArtem:]

I see that many hedge fund managers are long now on gold or gold trusts , etc. I think its not just hedging in classical term. We have big inflations expectations and doubtful market growth. If no risks will be converted in to reality we will see continue of market growth and gold growth too. Market will growth by better fundamentals, gold will growth by inflation expectations - if economy is began to recover - inflation wiil begin growing quick. If we dont see real economic recovering now, we will see second wave of recesion. It will mean more money to print again, bigger inflation in future, so market in this scenario will go down again, but gold after some down move, will grow even more quickly.

Jun 01 03:32 PM