Toronto—Global reflation is one of several factors that will support gold as governments deal with serious deficits that are likely to get worse because of social developments such as retirement of the “Baby Boomer” generation, according to Martin Murenbeeld of DundeeWealth Economics.

Murenbeeld was a panelist at PDAC2010 here Sunday and said in a later interview with Kitco News that reflation is high on the list of positive factors for gold. He said many governments have debt levels up to 100 percent or more. “I don’t see their deficits coming down rapidly, he said.

Retiring “Baby Boomers” will trigger more pension payments, more health benefits and the like, he said, which will stress governments even more.

As governments issue more debt to deal with these issues, central bankers will start buying more of it. “When central banks buy government debt, they are putting money into the system,” Murenbeeld said. “And in all of our analysis of gold, that’s what makes gold prices go up more than anything else.”

Murenbeeld said despite all the talk of gold and the dollar, “the real issue here is if you put a lot of money into the economic system, gold prices go up. It doesn’t really matter which country…. Gold will go up against any currency where the government and the central bank are printing money.”

A restraint in supply and the fact that central banks are buyers will also be friendly to gold. “We’re not seeing any significant increase in mine output,” Murenbeeld said.  And central bankers “are now more interested in buying gold than selling.”

Murenbeeld said there should be more attention to the dollar against the Asian currencies in relation to gold prices. He said the simplest currency basket for the dollar has been the Euro. The basket needs to be broadened to include more of the Asian currencies, he said, noting that China and India alone take up more than more than 25 percent of the world gold demand.

“I think this is important because Asia is where all the demand for gold really is,” Murenbeeld said. “The demand for gold in Europe is not very large, but the demand in Asia is.”

By Terry Wooten of Kitco News, twooten@kitco.com