Gold investors should brace for more volatility

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By Peter Kennedy

A veteran Canadian gold analyst is telling investors to fasten their seat-belts in anticipation of more price volatility following this week’s correction.

The prediction from Martin Murenbeeld comes after the recent surge in the price of gold was interrupted by a sharp drop to US$1,946.30/oz on August 11, 2020, from US$2,039.70 the previous day.

“You will get more corrections. But this is a heck of a time to come into the gold,” said the Victoria, British Columbia-based President, who has been a precious metals analyst since the late 1970s.

During a telephone interview with Resource World, Murenbeeld said the market had been setting up for a reversal after such a rapid advance.

“I have got to be honest and say I’m not very surprised by what has happened to gold,” he said. “I don’t think it is very meaningful. It is just a correction, one of these things where the technical guys say it has gone up too far too fast.”

Murenbeeld notes that the all-time high gold price in today’s dollars occurred during the Iran hostage crisis on January 21, 1980, when gold was fixed at US$850/oz. This price translates into US$2,787 today. “We expect this all-time high to be taken out before the current cycle ends,” he wrote in a recent edition of The Gold Monitor report.

Analysts say the 4% drop on August 11 came amid hopes of a U.S. stimulus deal, which convinced investors to take profits after a sharp rise to US$2,069.40 on August 6, 2020. News that Russia had developed a COVID-19 vaccine also helped to trigger the selloff.

Prior to the correction, the gold price had run up so quickly that it had begun to exceed Murenbeeld’s most bullish forecasts. “The correction brought it back to where we felt, all things considered, gold ought to be, which is a third quarter, 2020 average of US$1,875 average an ounce. Gold averaged just over US$1,800 an ounce in July.”

Meanwhile, Murenbeeld says investors should see the recent correction as a buying opportunity. “What I would say to people is that if you are waiting for a correction, it has come. So, you should re-establish positions that you prefer in the gold market, on the expectation that gold prices and gold equities will go higher over the next year.’

That opportunity also applies to some of well-known names in the gold mining sector, he added.

It is worth noting, he said, that Franco Nevada Mining Corp. [FNV-TSX, NYSE] was trading at around $219 last week and corrected down to $189.47 on August 11.

“So, I think that is not a bad buy,” Murenbeeld said.

Going forward, he said developments such as news of a possible COVID-19 vaccine and the U.S. election could spark more volatility. “There is going to be some bit of news that causes a correction. This is pretty normal in a market that has run this much.”

“If U.S. President Donald Trump gets elected, you will get more erratic behaviour and that will push gold somewhat higher,” Murenbeeld said. With Trump in the White House, investors should anticipate problems with Europe, problems with China, threats this way, threats that way. “Trump is also going to spend money because he doesn’t give a damn about the deficit,” he said.

“If you get the Joe Biden/Kamala Harris package you are going to get a lot of spending. The good news is that the hot temperature in international relations will subside a little bit. But you are going to get a tonne of spending from them. Under that scenario, the Feds aren’t going to raise interest rates.”

Murenbeeld said any increase in the price of gold should be good news for investors in silver. “Silver always tends to be one of these high beta golds,” he said. “If gold is going up, at some point silver is going to go up faster.” A similar scenario would apply if the price of gold goes down.

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