RCR ‘moderately bearish’ on medium-term gold outlook

6th April 2010 By: Esmarie Iannucci - Creamer Media Senior Deputy Editor: Australasia

PERTH (miningweekly.com) – Sydney-based Resource Capital Research (RCR) is “moderately bearish” on the medium-term outlook for gold, the research firm said in its quarterly report, released on Tuesday.

RCR said it expected gold to trade in the $1 050/oz to the $1 100/oz band for the rest of 2010.

Gold traded at $1 125/oz on Tuesday.

“On the gold price, we are cautious on the medium-term outlook, and are forecasting an average price of $1 075/oz for the balance of 2010, due to expectations that the US dollar will be well supported, and weakening supply-demand fundamentals for gold,” said RCR senior gold analyst Dr Tony Parry.

RCR noted that after a “speculative surge” in November and December 2009, which saw gold peak at an all-time high of $1 215,70/oz, it appeared that the US dollar had returned to the ascendancy as the main driver of the gold price in the short-to-medium term.

At the end of March, the gold spot price was 9% down from the December 2009 all-time high. Over the past three months, the gold price has firmed slightly from $1 096,80/oz, up 0,9%, and has generally traded either side of the $1 100/oz mark.

“We are moderately bearish on the outlook for gold in the medium term because we consider that the current uptrend for the US dollar could continue, particularly when taking into account the status of most of the currencies the greenback is measured against,” said Parry

“We consider that gold’s supply-demand fundamentals also tip the balance towards further gold price weakening,” he added.

Key measures of safe-haven demand for gold, such as inflows into exchange-traded funds have been weak in the last half of 2009, and have flipped over into net outflows in the first two months of 2010. Jewellery demand remained subdued and producer net dehedging was likely to trend towards net hedging during 2010.

Meanwhile, Parry noted that gold shares produced “spectacular outperformance” in the March quarter of 2009, at the height of the global financial crisis, but since then have generally underperformed.

In the last 12 months, equity markets have recovered strongly, but the Australian gold index is up only 8%, the Canadian gold index is down 2% and the South African index down 23%.

All have underperformed the US dollar gold price, which was up 21%, owing to strengthening producer country currencies.

Junior and emerging companies have, however, outshone their big brothers, as is evidenced by an average 159% twelve-month share price rise for juniors featured in the quarterly review.