Thursday, April 13, 2006

 

'You're Playing With Fire' If You Ignore Gold

A survey on gold was recently released. "Gold may post further strong gains in the next two years, and even surpass the 1980 high of $850 an ounce, as the U.S. economy slows and the dollar loses ground. That's the key finding of the GFMS Gold Survey 2006."

"'Levels safely over $600 are now in our sights and further hefty gains over the next year or two are quite possible, in the right circumstances, the 1980 high of $850 could even be taken out,' said Philip Klapwijk, chairman of the independent precious metals research consultancy. Gold will continue to find support from inflationary pressures and political tensions in the Middle East, retaining its role as a safe-haven investment."

"GFMS believes this phenomenon is still at its early stages but would not be surprised to see longer-term investors like pension funds enter the commodities market, propelling gold prices even higher. 'You're playing with fire if you ignore the weight of money argument, looking ahead into 2006,' said Klapwijk. 'We'd only need to see a tiny slice of mainstream assets diverted into gold, which comparatively is a pretty small market, and the price could really take off.'"

"One factor that could weigh against the price is declining demand. The survey found that in 2005, jewelry demand rose by almost 100 tonnes, with most of that strength coming in the first half when the price was still in the low $400s and Asian gross domestic product growth robust. Demand weakened sharply in the fourth quarter, notably in countries like India, a big gold consumer, as the rally took off and prices became more volatile."

"'From what we've heard for the first few months of this year, we could see jeweler demand slumping back almost 500 tonnes for the full year,' said Klapwijk.
'That'd leave jewelry offtake some 400 tonnes below mine production. That's just not sustainable in the long term.'"

"Mine production rose 2% in 2005 to more than 2,500 tonnes, the survey found, mostly due to a recovery at the giant Grasberg mine in Indonesia following landslides in 2003, and record output at Peru's Yanacocha mine."

Comments:
'We'd only need to see a tiny slice of mainstream assets diverted into gold, which comparatively is a pretty small market, and the price could really take off.'

This is true, especially when you consider what is the largest market in the world: paper money. A serious system problem could cause the available gold to be bought up in minutes.
 
I think the market cap of gold stocks is only around $100 bil.
 
You nailed the key quote, Ben.

Nothing annoys me more than those parroting the line about liquidity fueling PM purchases. I keep having to stamp that ridiculous notion out on various blogs (including THBB).

Someday, though, someone is going to pay attention and prices will soar. Jas Jain stated the same thing you did, Ben -- under the right circumstances, the available supply could suddenly become totally unavailable (i.e., virtually priceless).
 
RoHS (Restriction of Hazardous Substances or some such). Is driving some gold demand. We're having to order boards with Nickel& gold plating instead of tin/lead. Also lead/tin solder is being replaced by tin/silver/copper solder.

Every time people around me comment on gas prices or something else going up, I just mention that the FED can print money at will, but they can't print a single barrel of oil, or whatever they're complaining about.

People in this country are remarkably ignorant of what got them here, and how much investment, machinery, resources and work it takes to keep it all going.
 
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