The Recent Gold Decline And A Bearish Report

It isn't just bulls that are subject to somewhat embarrassing short-term timing. This report from the Toronto-Dominion Bank's economics department predicts that gold will enter a bear market. It was released yesterday, and was written by two TD economists: Derek Burleton and Dina Cover. Unlike the U.S.-as-Japan comparison deployers, who are really claiming a bearish New Era of slow or no growth for the United States, the two economists are claiming that U.S. recovery will drive down gold. Their bearish case hinges upon two bases: a recovery of the greenback, as the U.S. economy shifts into recovery, and the disappearance of inflation fears as the Federal Reserve adroitly drains the excesses from the monetary base. Both of these factors will push gold down to about $850 by the end of 2011, they claim, and to about $500-$600 sometime afterwards.


It's an unusual argument, in terms of content, because gold bears are normally deflationists of a certain sort. In terms of timing, though, it's the kind of forecast that pops up when an investment's in an incipient bubble. A bullish run is accounted to be irrational, and a return to historical norms is claimed. If the gold bubble evaporates before it gets rolling in a serious way, those two will prove to be prescient. If gold goes into a full-blown bubble, they're likely to be the idiots of the show.

I have to say, it does take some courage to go against the trend as these two have. Not many forecasters will come out and say that an investment that's been in a bull trend for more than eight years will turn bearish within a year. Also, their faith in the skill of the Fed is touching. (It's a Canadian thing; I'm one myself.)


H/T: I got ahold of this report courtesy of this thread in the Free Republic.