RE: Disconnect + Patience + Results = UpsideTerry
Recent BMO Outlook:
"Our fundamental outlook for the gold sub-industry
for the next 12 months is positive. Based mostly on
our expectation for a higher gold price, we look for a
rise in sales and earnings for this group in 2012.
The price of gold has risen steadily since 2001, and
we believe that the price will increase again in 2012,
for several reasons.
First, we believe short-term interest rates in the U.S.
will remain at low levels. Despite continued
economic growth and a forecasted rise in the Core
Consumer Price Index, we think it is unlikely that the
Federal Reserve will raise short-term interest rates
given our forecast for an average unemployment
rate of 8.6% in 2012, versus 2011's estimated
unemployment rate of 9.0%. Low short-term interest
rates reduce the opportunity cost of holding gold as
an investment.
Second, despite the higher gold price, global mine
production has been stagnant for over a decade.
According to data compiled by Gold Fields Minerals
Service, a U.K.-based metals consulting firm and
publisher, global mine output in 2010 totaled 2,652
tons, up just 1.9% from 2,602 tons in 1999.We think
that production will remain stagnant for the next
several years, as old mines are depleted and are not
being replaced to the extent needed to lift output.
This, combined with rising investment demand,
should cause the chronic gap between output and
consumption of gold to widen further, in our view,
helping lift the gold price.
Third, we expect that greater volatility of the major
world currencies will boost demand for gold as a
monetary reserve asset. Also, we believe that China
and other countries that hold a large portion of their
foreign exchange reserves in U.S. dollars will
ultimately diversify out of the dollar and into gold,
and that gold will rise in all currencies due to the
implementation of quantitative easing by central
banks worldwide.
Fourth, we think that gold demand will benefit from
concerns over solvency of international sovereign
debt.We believe that the threat of debt defaults,
both domestic and foreign, increases the appeal of
gold as a safe haven.
Following a projected rise of 16% in 2011, to $1,650
per oz., we believe that gold will trade in a sideways
pattern during much of 2012 before ending the year
up about 15%, at the $1,900 per oz. level.
Year to date to August 5, the S&P Gold Index fell
11.4%, versus a 4.9% drop in the S&P 1500
Composite Index, a 9.8% drop in the S&P 500
Materials Index, and a 17% rise in spot gold.
In 2010, the sub-industry index rose 30%, versus a 14.2%
advance in the S&P 1500, a 20.6% increase in the
S&P 500 Materials Index, and a 30% rise in spot
gold.... --Leo Larkin"