Supply/Demand Dynamics May Trigger Quantum Upward Change in the Gold Price

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When Credit Suisse strips out the secondary supply of gold, coming from central banks and producer hedging, "we find that over the last 18 years, apart from three occasions, the supply of gold has been in deficit."

Credit Suisse suggests that, while the U.S. dollar will continue to underpin the gold price, supply and demand factors will make their presence felt to such an extent that they "could trigger a quantum upward change in the gold price, enough to sustain a new gold price/US$ equilibrium.

In a recent "Gold Note," Credit Suisse Research Analyst David Davis said, "Our studies indicate that the dynamics surrounding the gold supply and demand has begun to change inexorably towards a diminishing supply of gold and increasing investment demand, which will ultimately impact the gold price."

"Our studies indicate in the long term global gold production will begin to decline as the diminishing number of new reserves fail to compensate for dying mines," according to Davis. "The decline in global gold production will likely be accelerated, should the gold mining industry continue to incur significant year-on-year inflation rates which are not offset by similar or significantly higher gold price increases year-on-year."

When Credit Suisse strips out the secondary supply of gold, coming from central banks and producer hedging, "we find that over the last 18 years, apart from three occasions, the supply of gold has been in deficit."

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