Gold at $2500 per ounce looks more likely than ever

June 2, 2010 by · Leave a Comment
Filed under: Commodities News 

Dan Burrow wrote a very simple and concise article laying out the case for a doubling of the price of gold from is current price that is hovering around $1,220.00 per ounce.   Focusing on the driving factors like money supply growth and inflation expectations are based in solid logic for this move.  Geo-political risk is another factor that was not mentioned.

With the tensions in Korean, Israel and Europe, those situations drive fear higher.   When fear and uncertainty rises, people seek safer havens for their wealth and gold has been the de-facto standard for thousands of years for just that.  Another point that has not been getting as much press but is still very relevant is declining mine productions around the world.  Most of the large deposits are giving diminishing returns and are require you to dig deeper and deeper into the earth.  Bottom-line is that it is a safe bet that gold will drive higher from here.

Daily Finance – David Rosenberg, chief economist and strategist at Canada’s Gluskin Sheff, tends to be pretty bearish, but he’s also about as dispassionate and data-driven a guy as you can find. In other words, he’s hardly some kooky gold bug. And if past relationships among data sets hold up, gold fever is just getting started, Rosenberg says.

“There is no doubt that when benchmarked against the CPI, money supply and GDP, gold can easily double from here,” Rosenberg told clients in a Tuesday report. “Demand is always difficult to forecast, especially for jewelry, but we do know that central banks have very deep pockets and bought more gold last year (425 tons) than at any other time since 1964.”

Which brings us to the issue of stagnant supply, and that too favors a sustained bull market in gold, Rosenberg says. Global mined production of the ductile metal hasn’t increased in a decade — and has actually declined outright in five of the past eight years. Furthermore, almost all the gold that’s easy to dig up — and therefore cheaper to get at — has been unearthed. Gold companies in South Africa have to drill as much as 2.3 miles to get to new deposits. Meanwhile, all Federal Reserve Chairman Ben Bernanke has to do to create currency “is press a button,” Rosenberg says.


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