With Gold at $895, Where Next and Why?
Source: Julian D.W. Phillips, Gold Forecaster - Global Watch (1/14/08)
The volume of investment funds held in the States alone is more than enough to send gold well through $2,000 if not five figures, in $ terms. Add to that Europe’s investment funds, Asian investment funds, alongside the growing wealth in India in particular where gold is a proven investment medium and not just for profit...
The volume of investment funds held in the States alone is more than enough to send gold well through $2,000 if not five figures, in $ terms. Add to that Europe’s investment funds, Asian investment funds, alongside the growing wealth in India in particular where gold is a proven investment medium and not just for profit [for religious and taxation reasons as well]. And to date gold has received just a tiny fraction of that money.
The troubles of the last year were a starter pistol’s shot turning the attention of investors to gold. As the year of 2007 came to a close and the sum total of investment reasons for holding gold drew the attention of many investment managers to gold who had not previously contemplated investing in gold, whether in shares of the gold Exchange Traded Funds, the potential swamping of the gold market became a possibility. A number mentioned here and elsewhere in the past has been that if only 1% of the funds invested in the New York stock exchange were to find its way into gold then the gold price would move to between $1,000 and $10,000. Now add European, and Asian investment funds to that of the U.S. and estimate if just 1% of that money came into gold and you would begin to see the potential for the future gold price.
Before that moves from possibility to probability, we have to ask ourselves, will the root causes of the present reasons to hold gold persist for long? We would answer that by asking, “can you see effective solutions or attempts at solutions out there that will bring stability to the banking system, to the monetary system and will drop inflation and bring real growth to the globe [outside of Asia]?” Unfortunately not! So why should investment manager hold back from investing at least some of their funds in gold?
With the gold market just in surplus this year [123 tonnes in 2008] without this flood of money and investment this 2008 year alone [first week and a half] seeing just over 15 tonnes [or more by the time this reaches you] from long-term investors, few doubt that demand will shoot past supply. Oh, please note that supply of newly mined gold is set to drop steadily from now on reducing that surplus still further until the gold market, without investment funds, moves to a deficit. This reduces the amount of investment of long-term new money into gold needed to make the gold price rise.
Yes, the fall off in de-hedging we expect in 2009 will reduce demand, but by then we do believe investment demand will take that entire amount. [We will be watching this as a danger to the rising gold price]
As the gold price rises jewelry demand having fallen off because of high prices, we believe will lift again as its value describes wealth better than in the recent past and will see a new type of jewelry demand looking for higher quality pieces replaces the demand for low quality gold jewelry, eventually.
- Gold Shares
As gold Exchange Traded Funds distracted traditional gold investors and new gold investors only trusted their knowledge of gold investments as far as Exchange Traded Gold shares, so gold shares were largely overlooked by investors for most of 2007. Were the gold price to remain at present levels, more demand would be made of gold mining companies in terms of matching performance to risk. As the gold price rises and the benefits of leverage show themselves in gold shares performance and new gold investors knowledge of gold mining shares increases, so we would expect gold mining shares to receive more investment, to gain the return of dividends as well as capital appreciation. These investor demands have shown themselves in the last year but as 2007 wound down, the potential returns offered by gold shares became attractive again.
We at Gold Forecaster will attempt to show you the benefits that come from this evolving market in the form of main market gold shares and new Juniors that offer outstanding potential against fair risk as well as highlight the shares from the top, medium and lower categories that may be lagging in their performance and should catch-up.