Analysts remain bullish on gold in 1990

The price of gold closed last year at about the same level as it started, around US$400 per oz. As heartening as that may be to some, the real story is the precious metal spent most of the year trading well under that mark.

It certainly wasn’t the most exciting year for investors in the precious metal, although gold did rally as 1989 came to an end. It was what traders had been waiting for, after a period which saw gold dip to the $350-360 range.

In New York City, the precious metal exceeded $420 in late November and early December, while in London it topped $417. Reasons for the price surge varied, as a reading of news clippings attests.

Political turmoil in Eastern Europe was making headlines at the time and investors were reportedly growing uneasy over the rapid pace of change behind the Iron Curtain. According to a precious metals dealer in California, European investors “feel they’re on a political bog and they’re getting panicky.”

The 5-day run-up ended quickly with a bout of profit-taking. Many analysts were still bullish. The higher gold prices were attributed to uncertainties about the economy, stock market volatility and the winds of political change in Europe.

At New York’s Commodity Exchange, gold futures prices raged an up-and-down battle. An analyst opined gold was reacting to the fundamentals of supply and demand. Price upswings were attributed to speculators.

The West German mark was strengthening with the gold market, a positive sign to bullish investors who believed West Germany would benefit economically from the crumbling Berlin Wall. The Soviet Union was reported getting ready to issue gold-backed bonds and stop the sale of gold on the open market. Also being contemplated was the backing of the ruble with gold. The price of gold continued to rise and fall.

News of a widening trade deficit in the U.S. sent the price upward. The precious metal got a further boost when political events in Panama started heating up about mid- December.

The Christmas and New Year’s holidays then brought some calm to the market. Early January saw gold plunge to below $400, the political tensions in Eastern Europe and Panama in particular having eased considerably.

The recent decline in the price of gold didn’t surprise gold-price forecaster Martin Murenbeeld of M. Murenbeeld & Associates of Victoria, B.C., who says a “correction” was expected from a technical point of view.

“I don’t think this pullback in the gold price ends the bull trend,” he writes in his weekly newsletter. “The key factor driving gold at this time is Fed (U.S. Federal Reserve Board) policy, and it should stay mildly stimulative regardless of current doubts about this in the market.”

Murenbeeld is one analyst who believes the political events in Eastern Europe present a number of negatives for gold. Leaders in the Eastern Bloc nations, he points out, face a stiff task in providing more consumer goods to their “deprived” populations, and the West will of course benefit by supplying these goods. But payment, he argues, will have to be in something more concrete than rubles (or other East Europe currency); the likely result is more gold coming on to the world market.

Among the other negatives is the improbability of the Soviet Union invading one of its satellite nations with its troops to quell an uprising, similar to the Afghanistan decision a decade ago.

The hot market for gold last year was definitely Asia, writes gold bug Timothy Green in an article published by The Gold Institute of Washington, D.C.

He says four major markets — Dubai, Singapore, Hong Kong and Tokyo — imported about 1,200 tons of the precious metal in 1989, representing about 75% of non- communist production that year. Other active markets in that part of the world included South Korea and India.

“The main message from all these countries is the gold price in local currency is cheap.’ Indeed, the offtake levels are approaching those of the early 1970s, when gold was still only just over $35 an ounce,” he says.

A buoyant jewelry demand in 1989 and growth in other industrial uses is a favorable omen for the metal, Green says. “A gold market with an excellent level of real physical demand is basically in good shape,” he writes.