Ben Temkin
14 October 2008
column
Johannesburg — I RECEIVED a question from a reader at the weekend: "Do you hold the idea that the dollar gold price will move to the $1200/oz mark in four years' time, given the uncertainties of the prospects of the global economy?"
Last week, as you know, I wrote again on NewGold, the hedge counter in the Private Investor portfolio. In Monday's Technical Preview, Jean looked in some detail at the bullion market. The gist of Jean's column was that gold would, as it has often done, continue to be a refuge when currencies, commodities and equities were being battered.
Jean made a count of the gold price, which is, of course, a forecast based on technical indicators.
I mentioned the view, from Gold Fields' annual report, that the price of gold was underpinned by the cost of producing gold, which the gold group calculated as $800/oz.
It's expensive and it takes time to increase the supply of gold and resources are not infinite. This means the outlook for the gold market is bullish.
The caveat is -- and history underlines this -- that when the markets pin their faith on a better hedge for gold, the dollar, for example, gold is dumped and the gold price slumps.
We wouldn't hold NewGold if we didn't reckon it had a higher probability of rising than falling over time. But pinpointing a time range and a target price is hazardous.
There are, however, market commentators who publicly put their necks out on their forecasts. These forecasters, if they are right, sometimes enjoy celebrity and are described in the media as gurus.
Investors such as Warren Buffett and George Soros, who are famous for beating the market -- not always, but most of the time -- are also, and more correctly, acclaimed as gurus.
In the 1970s I used to receive the International Harry Schultz Letter. Schultz was a guru on the markets, especially on the gold market, and there was always a good core of a story in one or other of his comments. I thought to myself, it would be interesting to find out what Schultz had to say about gold now. Was he still alive?
The wonders of the internet and Google proved Schultz's letter still existed. The second hit on the search was a story last December by Peter Brimelow, who writes for Market Watch.
He had also wondered if Schultz was still alive, and did receive an e-mail insisting he was. Possibly he has a stand-in writer.
In December, as Brimelow wrote, Schultz had reckoned that investors should have gold shares and bullion to a minimum of 35%-45% of their total portfolio, with at least 10% in physical gold bullion and coins, and/or very rare coins.
Schultz had written then that a financial tsunami was upon us. Just about all the financial wreckage he forecast in December is now reality.
The big US and UK bank rescue packages offer some solace. If Schultz's subscribers had followed his advice, they would be shouting with joy.
I would probably have reckoned he was exaggerating, but it's comforting to hold some gold.
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