does that mean we shouldn't believe his thesis?
"...As the US economy heads towards a crisis of either uncontrollable inflation or deflation,
gold’s investment profile will rise.
We envisage a period when gold exhibits thecharacteristics of a ‘Giffen good’, contradicting the usual negative price elasticity for
other goods. The term refers to Sir Robert Giffen, who was credited with the observation.
Classic examples of Giffen goods are normally staple foodstuffs, such as bread and
potatoes, in poor communities. When their price rises, the drain on incomes is so great
that the community is forced to reduce consumption of expensive foodstuffs,
e.g. meat, and consume even more of the staples to sustain their diet.
At some point, we think that
the rise in the price of gold will lead to an acceleration in demand from central banks in emerging economies (especially those with
large US dollar reserves), investment funds and latterly private citizens. This
could be when gold breaches its all-time high of US$850/oz, or when it breaches
US$1,000/oz, or in response to an economic event, for example one which highlights the
risks of unlimited credit/debt expansion. What the catalyst will be we do not know, but
our advice is to keep hoarding. Indeed, it is even possible that historic ratios of gold
versus other asset prices could be stretched in favour of gold. While our forecast for
the long-term average gold price is US$1,500/oz, there is a possibility of a spike to
US$4,000-5,000/oz in a full-blown Crack-up Boom or deflationary depression."
Fig 9: Redburn: Gold price forecasts 2006-12E
US$/oz 2006 2007E 2008E 2009E 2010E 2011E 2012E
Gold price 604 700 90 0 1,050 1,200 1,350 1,500
Source: Redburn Partners
