Bearish outlook for gold in 2010: RCR

Resource Capital Research expects trading mostly in the US$1,050/oz to US$1,100 oz band for the balance of 2010. It believes the late 2009 surge in the gold price was predominantly speculative.
“The Australian, Canadian and South African gold share indices have significantly underperformed world equity markets, and the US dollar gold price, in the last 12 months, partly due to currency appreciation against the US dollar. However the emerging producers of tomorrow have continued to dramatically outperform their big brothers,” said RCR senior gold analyst Dr Tony Parry.
Gold shares produced spectacular outperformance in the March quarter of 2009, at the height of the GFC, but since then have generally underperformed. In the last 12 months equity markets have recovered strongly (the Morgan Stanley World Index is up 51 per cent), but the Australian gold index is up only 8 per cent, the Canadian gold index is down 2 per cent and the South African index down 23 per cent. All have underperformed the US dollar gold price (up 21 per cent), due to strengthening producer country currencies. Junior and emerging companies have, however, outshone their big brothers, as is evidenced by an average 159 per cent twelve month share price rise for juniors featured in the RCR review.
The spot price of gold is currently US$1,107.00/oz (March 30th) which is down 9 per cent from the December 2009 all time high. Over the past three months the gold price has firmed slightly from US$1,096.80/oz (up 0.9 per cent), and has generally traded either side of the US$1,100/oz mark.
“On the gold price, we are cautious on the medium term outlook, and are forecasting an average price of US$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 Dr Parry.
The report stated that gold’s supply-demand fundamentals also tip the balance towards further gold price weakening. 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 actually have flipped over into net outflows in the first two months of 2010. Jewellery demand remains subdued and producer net de-hedging is likely to trend towards net hedging during 2010.

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