Pursche thinks that China is getting ready to slowly turn around its monetary policy. "I think that if you listen to what the finance ministers are saying they are all talking about the fact that they have achieved the desired slowdown in the housing market." Pursche thinks that with housing prices down 30% in some areas, with more pressure on the yuan to rise in value along with a possible recession in Europe, China will be forced to pump more money into the system.
"Investor demand is unlikely to drive prices significantly higher in the short term," says Pursche. "What will drive prices higher are fears of inflation ... if you see the ECB print money, the Federal Reserve
Bloomberg reported today that 16 out of the 21 primary dealers that trade U.S. government securities with the Fed expect the central bank to buy more mortgage backed securities -- launching a third round of quantitative easing. From 2008 until June -- during which the Fed launched two QE programs -- gold prices rose 106%, which means prices could hit $3,500 using the same metrics.
Randgold Resources (GOLD - Get Report) will be in the hot seat today, down 7% after lowering 2011 gold production guidance for the second time this year. The West African gold miner is now expecting to produce between 690,000-700,000 ounces versus 760,000 ounces on the high end.The miner had to lower guidance from 790,000 ounces before due to unusual wet weather in the Ivory Coast and that factor was primary in the additional revision. But this time there were other problems: a temporary work stoppage in late November due to union negotiation; a longer than expected transition from diesel to the national power grid - although this will be a significant cost saver for the company long-term; a failure of its barring gear in its number one mill on Friday which caused its number two mill to also be shut down. The number two mill should be started on Tuesday but it could take 10 days for the number one mill to be back on line. In the third quarter, Randgold missed on earnings, revenue and production but investors gave the stock a pass due to its high growth rate -- its profit ballooned 335% compared to a year earlier and production was up 9%. David Christensen, CEO of ASA Gold and Precious Metals (ASA), who is a believer in Randgold's long term growth strategy, said "the market is taking those who do not perform out to the woodshed, no matter how good they have done in the past. Investors are just itching for reasons to sell or short a name." Christensen thinks the pressure on Randgold will pass. The stock was downgraded to reduce from add at Oriel Securities, but its average price target from all its ratings still represents 36% upside from where the stock closed on Friday. Other gold mining stocks were soaring. Kinross Gold (KGC - Get Report) was rising 3.61% to $13.20 while Yamana Gold (GOLD - Get Report) was adding almost 4.58% at $15.30. Gold stocks, Agnico-Eagle (AEM - Get Report) and Eldorado Gold (EGO - Get Report) were mixed at $40.87 and $17.05, respectively. -- Written by Alix Steel in New York.
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