Posted on 01/04/2006 11:00:11 AM PST by hubbubhubbub
These are good times for gold investors, according Frank Holmes, Chief Investment Officer for U.S. Global Investors. In a recent webcast, Holmes told listeners: “We have a unique situation where all critical drivers for gold are pointing in the same direction.” Holmes identified six key drivers and talked about why they are all pointing to higher gold prices.
”There are many components here that are driving gold, and they sort of rotate around,” says Holmes. “It’s not linear.”
Currently, we are in a secular bull market in commodities because gold is the ultimate money, says Holmes, and because demand is now exceeding supply. “When paper money is being printed at an extreme rate, gold becomes more significant as a reserve currency,” says Holmes. “It starts to show up in people’s portfolios, and in governments.”
According to Holmes, gold prices are currently being driven higher by:
- Fear of a slowing GDP, which leads to negative real interest rates. Gold is attractive when real interest rates are negative. Currently, there is a global wide fear of a slowing GDP. Historically, when Americans have been concerned about inflation, the price of gold has surged.
- Oil exporting countries are increasing their percentage of gold reserves. There has always been a strong interrelationship between gold and oil, and historically, gold and oil have always moved in the same direction. “With 3 billion people consuming 20 million barrels of oil per day . . . it is more likely that gold will rise before oil falls, because oil won’t fall much,” says Holmes. Russia announced in November plans to double gold reserves as a portion of all of its reserves, from 5% to 10%.
- China, which now has a trade surplus, is increasing its foreign reserve gold exposure. Incomes are increasing dramatically in China, and citizens are becoming big consumers of American and Chinese goods. The new Shanghai Gold Exchange, combined with the liberalization of citizens to freely buy gold and the culture’s affinity toward gold, make gold an attractive asset.
- Low gold prices in the 1990s led to cuts in exploration and falling production – which has ultimately led to a decrease in supply.
- Lower interest rates have curtailed hedging – which also has led to diminished supply.
- The War on Terrorism has resulted in deficit spending and a weaker U.S. economy. The cost of war is hard on a country’s currency, and a weaker U.S. currency always results in higher gold prices.
According to Holmes, the supply side of gold is running at a significant deficit to demand. South Africa, the U.S. and Australia – which combined represent 36% of gold mining supply – have all seen declines in gold production. The world’s largest gold companies can’t find large deposits, and rising energy prices have hurt the cash flow margins of most large producers.
With the key drivers all pointing toward higher prices, Holmes says a gold price of $600 to $650 over the next 12 months is a “high possibility.” (January 3, 2006)
Not you again troller. Go away, get a job, do something.
Yes, it is possible for Gold to spike up to $850. When the Hunt brothers were involved, I believe it was at or near $1,000 (per troy ounce) for a time. Rather than buy ounces of gold, a greater profit may be had by speculating on gold futures. If the price were to spike up to $850 with in the contract's year, the profit would be tremendous.
It is also interesting to note that when gold and silver last spiked (silver was at $50/per troy ounce), the government froze trading for a time and the price began to slide. That is the trick though; predicting at what amount it will rise to before government intervention. Then, once it hits the plateau, selling short. Someone is playing the market here. I would not be surprised if the major investment houses themselves are pushing this so they can play the small investors and squeeze billions in profit from the market.
“It’s not linear.”
What does appear to be linear, however, is the very recent upsurge in the use of the phrase "it's not linear."
We may have even reached a tipping point, lol.
I own some (thankfully not much) bought in the 1970's, it only has to hit $1600 or so for me to break even.
What's Driving Gold?
All this marketing that tells saps its a great investment.
I have a limited-time-only supply of golden tulips - get 'em now before the Europeans buy me out!
"government-controlled money"
Nice! Do they teach that in Gold Bug 101?
Please just answer this question: when was the last time the same kind of guy who wrote this ever said that this WASN'T the time to buy gold?
The professional speculators are creating hype to persuade the amateurs to buy at these high and higher prices so that they (the speculators) can take their profits. If they try to sell without a large number of buyers, it will force the price back down. The true test is whether they are continuing to buy in large volumes or are just awaiting their selling trigger price.
No just the cranks.
High energy prices makes mining and exploration of gold expensive, add gulf nations buying gold as a result of oil transactions, and a glut is not so evident.
Also some cultures have traditions of buying jewlry, like.... 2 billion Indian and Chinese who are now going to be able to do so.... there is not enough gold on earth to adorn all the women in India with a mere basic gold bracelet
High gold prices make it less so
Also some cultures have traditions of buying jewlry, like
Which will all get melted down and sold when the price of gold gets to a certain point...
Those darn Asians and Islamics are buying all the gold!
They take those silly dollars for junk and then turn around and buy all the gold. Then those central bankers in Washington DC have their fancy lunches, belch a couple times and then decide to print more dollars.
Meanwhile the gold mines can only produce so much gold. They can't make gold with a printing press or computer -- some poor soul has to dig it out of the ground.
I've written here before how we would have never survived the 1930's if Father hadn't brought those gold coins back from France in the Great War. Now you are seeing a lot of folks saying, "Gee, I'd like to have some Krugerrands but where do I get 'em?"
Everybody has to find out for themselves. And I don't mean ordering them off this here Internet. Because then the government knows you have them and when the next FDR gets elected...
You guessed it -- like that thieving dog Roosevelt they will steal all of our gold!
Darn Asians and Islamics are buying all the gold. They are making America look like a bunch of suckers.
Oh well. You seen one great depression then you've seen 'em all. Of course if you have never seen one then you have a whole new experience in front of you.
Gold is going to the moon. Those central bankers ought to read about what happened to Mussolini...
HG
Massive selling of PM would drive the price down, Correct. When the average person starts talking about buying gold again the dollar will be toast.
As far as North American citizens go, most have little silver or gold. They turned all that old money into dollars during the 80's.
We will have to agree to disagree. I have seen $1,000 dollar gold during the Hunt period and it did not last for the reasons I gave.
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