TORONTO (miningweekly.com) – Dundee Wealth economist Martin Murenbeeld continues to believe that gold and other commodities are headed towards being a separate asset class, and expects to see increased levels of managed money being invested in commodities, he told an audience in Toronto on Monday.
Murenbeeld also commented that the gold market has come full circle, with the focus shifting away from jewellery demand and back to investment demand and central bank purchases of the precious metal.
Until the Bretton Woods system collapsed in around 1968, central bank buying and holdings of gold were the main source of gold demand, he pointed out.
When central bank purchases fell away, the natural result was that jewellery consumption became the dominant source of demand, until the establishment of gold exchange-traded funds meant that investors could put money directly into gold, often as a haven from riskier investments or during periods of economic uncertainty.
Investment demand actually exceeded jewellery manufacturing demand for gold in 2010 for the first time, according to market watchers at GFMS, and some analysts have suggested this puts the market in a precarious position, as prices could fall sharply if investor demand growth slows or reverses.
But Murenbeeld, who also dismisses the notion that gold is in a bubble as a "myth", said he is "quite positive" on investment demand for gold.
“Gold is coming back to its historical roots,” he said at an event hosted by the Toronto Chartered Financial Analysts society.
“This isn't a new type of demand for gold, this is the old demand for gold. Back in history, gold was kept for precautionary investment reasons, and we're going back to that time.”
Murenbeeld also commented that new supply of the metal will continue to be constrained and likely “relatively inelastic”.
“Today it can take well over ten years for gold production to react to higher gold prices,” he said.
He also suggested that gold prices and the levels of global liquidity are historically closely correlated, which implies higher gold prices if governments around the world continue to print money.
Gold, which reached a record $1 448,60/oz on March 24, was trading around $1 435/oz on Monday.
If it is true that commodities are “morphing” into a new asset class, it follows that money managers would want to have at least three percent of their portfolios in commodities, if not more, he commented.
Based on rough 2009 and 2010 numbers, that would equate to about $1,5-trillion going into commodities, about 3,5 times the current position, Murenbeeld said.
“I think over time we are going to go in that direction, [although] it's not going to be a straight line,” he said.
Commodities morphing into an investment class - Murenbeeld