(October 2 – 14:10 ET) – Gold will likely continue to stagnate, says Merrill Lynch.
Merrill analysts note that gold has languished all year, and anyone expecting a price bounce this has been disappointed. The brokerage firm doesn’t see things getting better any time soon either. “In our opinion, several key factors in the market continue to exert downward pressure on gold prices in the intermediate term including: the overhang of central bank sales of gold reserves (largely from the European Central Bank which will continue for another four years), a lack of inflationary pressures in the U.S., and a strong U.S. dollar.”
With these conditions prevailing, the firm is cutting its price forecasts substantially. This year’s forecast drops from $288 per ounce to $280 per ounce. (All prices are in U.S. dollars). For 2001, it drops its call from $315 to $285; from $325 to $300 in 2002; and from $325 to $310 in 2003. For 2004 and beyond Merrill sees gold at $325.
The result of this darker forecast should be felt most immediately by low-cost producers. But the price weakness in 2001 and beyond should hit almost all the producers. Only the lowest cost producers, such as Barrick, Newmont, Placer Dome, and Franco-Nevada, “are expected to report meaningful earnings in 2001”.
The good news is that things can’t get much worse. Merrill says even after dropping forecasts for both prices and earnings its recommendations are unchanged since valuations are at historic lows anyway.
-IE Staff