According to an extensive research report by Standard Chartered, gold will surge to $5,000 per ounce on supply shortages. While investment demand has been increasing for gold and contributing to a run up in value from $252 per ounce in 1999 to where it stands today at $1,539 per ounce, their research shows that there is not enough supply to satiate coming levels of demand.
“There are very few large gold mines set to commence operation in the next five years,” said Standard’s analyst Yan Chen. “The limited new supply comes at a time when central banks have turned from being net sellers to significant net buyers of gold. The result, in our view, will be a gold market in deficit, even assuming flat growth in demand. With the supply-demand balance so out of kilter, we see the gold price potentially going to US$5,000/oz.”
As the global paper currency crisis has heated up, central banks worldwide have turned to buying gold to diversify their assets, shying away from US dollars. It is simple economics that as demand heats up, as long as supply remains constant, prices will rise. China only has 1.8% of their assets in gold, if they were to bring it up to the global average of 11% they would need to acquire another 6,000 tonnes which is equal to two years worth of production.
This is one of the first pieces of research that we have seen that has addressed the supply side of gold values. Most research and analysis has come from the demand side. Standard Chartered analyzed 345 gold mining companies in order to come up with their prediction.
Without any doubt there are many factors that are now contributing to the rise in gold, much of which is fear based. As the US and other countries are going further into debt and printing money, more dollars are flowing into gold as a hedge. Gold is a double play asset in the sense that you get growth potential from investment demand and you also get a hedge against inflation as the value of gold increases while the dollar losses value.
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Chief Market Analyst, ITM Trading