EclecticLip

Rob McEwen — founder of Goldcorp — got a mention in Bloomberg the other day, basically about his predictions that gold would hit:

• US$2000/oz…  by end-2010
• US$5000/oz…  at its peak

He’d have a lot less credibility if not for his track record. 

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As I write this, the yellow metal has shot up 50% (Canadian dollar terms) from its low four or so months ago, and has decoupled from virtually every commodity.
In the short term, large jumps such as Feb 17’s $30 increase tend to mark the ends of trends, whether they’re upward or downward jumps.  So I would expect gold to cool down pretty soon.

But longer term, as McEwen points out, it’s likely to be supported for several more years: in an effort to stimulate their economies via exports, countries are likely to devalue their currencies. At some stage it’ll enter a bubble, and it’ll be time to load up on tech stocks again. 

It seems to be common wisdom that the US’s problems mean a currency devaluation is inevitable.  I’m less sure of that now, because Europe is so badly off, it actually makes the US look healthy.  And not to be outdone, Japan is so badly off, it’s making Europe look healthy.  The US dollar could well be the least-worst of the bunch.  Mind you, if it is the “tallest pygmy” of currencies (as Morgan Stanley’s Stephen Roach proposed) then gold would probably be King Kong.

Running down the reasons for pessimism on the European side:

• banks are in even worse shape than their American counterparts (the housing bubbles were bigger over there)
• the likelihood of sixteen squabbling Eurozone governments being able to come together on an economic policy, given their consituents’ differing situations, is slim
• consequently, it wouldn’t be surprising to see some governments abandoning the Euro to regain policy independence, which would create a huge crisis-in-confidence in that currency
• Spain — the entire country of Spain – had 135 housing starts in Q4 2008.

And on the Japanese side:

• GDP dropped 12% (annualized basis) in the most recent quarter
• December exports fell 35%, year-over-year
• …and Toyota is halving domestic production!

[Feb 18 eve update - added Spain data]