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Thursday, March 15, 2007

Higher, But Not High Enough

Merrill Lynch is increasing its gold and silver price forecasts ...

Merrill Lynch has increased its forecast for the annual average price of gold to $675/oz from $650/oz in 2008; to$650/oz from $625/oz in 2009; and to $625/oz from $600/oz in 2010. The price forecast of $675/oz in 2007 remains unchanged, but the long-term price has been upgraded 10% to $550/oz.

"Given industry average cash costs of $350/oz, depreciation andamortization expenses of $100/oz and other costs of $50/oz, we believe that a $500/oz [price] is required (on average) for companies to break even on a profit basis," said Merrill Lynch's North American Precious Metals Quarterly."Our forecast of $550/oz provides a 10% margin to this base and equates to a 15% discount to the current spot price of approximately $650/oz."

The positive drivers for gold include: "heightened geopolitical risk, the Merrill Lynch' foreign exchange team's forecast for a weaker dollar, ongoingdehedging, lower central bank sales, a rebound in fabrication demand andcontinuing growth in investment demand," said Merrill.

"The negative drivers include potentially lower jewelery demand and increased scrap supply in response to high prices. Despite these issues, we believe there will be a200-400 mt demand gap in 2007."

Merrill Lynch has also increased its 2007 silver price forecast from$13.00/oz to $13.75/oz. "Also, we are increasing our 2008, 2009 & 2010 forecasts from $12.00/oz to $13.00/oz, $11.00/oz to $12.00/oz and $10.00/oz to$11.00/oz," respectively, said the report. "We are maintaining our long-term silver price of $10.00/oz."

One hates to calls a group of respected Wall Street researchers a bunch of pussies, but my mother gives less conservative estimates than these.

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