Get ready for the pricking of the gold bubble.
Get ready for the pricking of the gold bubble.
That's what some experts are saying, not that too many investors are listening with the price sailing through the $US1300 an ounce mark - as was predicted here last week.
But, in little more than three years, according to analysts at Patersons, a stockbroking firm, gold will be trading closer to $US700/oz.
Alex Passmore, head of research at the Perth brokerage, publicly aired the $US700/oz forecast at an investment conference in Queensland yesterday.
The audience of 600 self-funded retirees with a large collective appetite for gold shares (and a free lunch) greeted the gold-price tip in silence - either because they were stunned or, more likely, because they sense that it is correct.
Passmore's message, which was echoed in the latest commodity-price tips from the respected forecasting firm, Access Economics, was that a return to economic sanity in Europe and the U.S. would kill the current gold boom.
His nominated year for gold retreating to $US700/oz is 2014, but what he didn't say is when the $US600/oz (46 per cent) retreat would start, and that really is the key to portfolio management, being ahead of the next move rather than being there at the bottom.
The good news for gold investors is that they should enjoy another year, or two, in the sun with gold production showing no sign of a sudden increase thanks to a worldwide lack of exploration success and mine development, while the metal itself remains a major attraction for investors seeking inflation protection.
There might even be the time for the government to react to last week's suggestion that should gold top $US1300/oz, and keep heading higher, then it would be a perfect candidate for inclusion in the planned mining super-tax.
But, what Passmore and Access have done this week is remind everyone that commodity prices are cyclical. Always have been, and always will be - something the government will learn, pain fully, with its decision to attach its tax base to mining profits rather than the much safer royalty system which is hooked onto revenue - leaving the profit risk with investors.
And what investors should be doing is taking note of the warnings, while enjoying what could be a period of peak prices - which might have only months to run before starting to slip back.
The warning from Access Economics was largely directed at the Australian Government's budget predictions, including comments that we might be enjoying "five minutes of sunshine" and that commodity-price forecasts lack "the oomph currently projected" in the government's budget.
So, if Access and Passmore are correct, and we are in a bubble of excess optimism, why is that so?
One view, which is gaining popularity, is that the entire commodity complex, including metals and agricultural products, has become a giant U.S. dollar hedge.
Investors are buying anything with today's U.S. dollars in the belief that tomorrow's dollars will be depreciated thanks to the U.S. government firing up its printing presses to flood its domestic economic with cash, even at the risk of creating inflation.
In a way we are living in what might be called a "Harvey Norman Moment" - a sort of buy your merchandise today because tomorrow it will be more expensive.
In the commodity sector it is a case of getting as much bang for the today's bucks before they fall in value.
Unlike Passmore's gold prediction, with its missing start time, the overall commodity-price retreat will start when we know how many extra dollars the U.S. proposes to create - and that's a number which will become clearer over the next six months.
In the meantime, enjoy life in a commodity-price bubble - but remember that for every bubble there's a prick.
