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- Created on Tuesday, 10 June 2014 09:30
April 2015 – Week 3 Edition
Gold struggled to stay above $1200 last week, falling below $1200 on Thursday
before recovering on Friday, then falling below $1200 again on Monday, April 13.
Gold began both 2014 and 2015 at $1200 per ounce, so this number is beginning to
resemble a magnet for gold prices. Gold is still going up in terms of the euro
and other major currencies, but the price in dollar terms has been dull, flat
and boring. However, there are some demand factors which could break gold free
of its chains in 2015.
New Gold Supplies are Likely to Fall This Year – Driving Prices Up
The metals consultancy firm Metals Focus anticipates new gold mine production to fall by 14% in 2015 vs. 2014. They believe that this decline in new supplies will boost gold’s price by the end of the year and in 2016. Specifically, they said: “We believe that 2015 could well represent a bottom with a clearer turning point becoming visible in 2016….From 2016 onwards, there are several plausible candidates waiting in the wings to provide the spark for a renewed gold bull market,” including “potentially ‘gold-friendly’ developments in debt, inflation, foreign exchange, commodity and equity markets and the scope for a far more malign environment for international relations to develop over the next few years.”
Mainstream financial institutions are also waking up to these new supply/demand dynamics. Citigroup, Commerzbank, Standard Chartered and Bank of America have all issued bullish reports or surveys on higher gold prices in 2016. The Citigroup report said that gold “could regain some of its luster once the global epidemic of money-printing and currency devaluations make their way into inflation and oil prices stabilize sometime next year,” Other firms won’t predict a higher price for gold but they are willing to admit that the supply of mineable gold will shrink in the future. In such a scenario, rising (or even flat) gold demand will push the price of gold up if the new supplies begin to shrink, especially by 14% a year.
Gold is the Perfect “Contrarian” Investment Now
It takes a “contrarian” state of mind to buy gold now, when it’s down, but that was the winning move in 1999 through 2001, when gold bottomed out twice at under $255 per ounce. The stock market is near record highs, which tells a “contrarian” investor that it would be a wise move to lighten up on some overpriced stocks and buy some underpriced metals, for portfolio rebalancing if nothing else. The strong U.S. dollar is hurting many big multi-national stocks which rely on overseas sales, since their earnings are sharply reduced when translated from a weaker currency, like the euro, into a stronger currency. The currently weak dollar is a temporary illusion. When the dollar begins to sink, then gold might soar again.
John Hathaway of the Tocqueville Funds expressed this gold vs. stock market trade more eloquently:
“Against a background of investor complacency, the strong dollar has been perceived as bad for gold. A weak gold price, especially in US dollar terms, is an essential part of the illusion. The unifying narrative thread is confidence in the Fed and central bank policies in general. Investors, both of the cynical and gullible variety, have bought the party line. By design, zero interest rates and financial repression have forced capital into risky assets. In our opinion, valuation metrics and position extremes suggest the potential for capital losses on a scale similar to 2008…. In our view, the coming reconciliation of illusion to reality promises to be epic, one in which ownership of real, not financial, assets, is essential. We have always believed that gold is the most liquid, easily acquired real asset with a legacy of protecting capital during periods of financial instability. That it has become discredited in Western capital markets speaks for itself. It is a message for contrarians to heed.”
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