The Upward Pressures on Gold

November 14th, 2012 by

With all the worries about European and Japanese recession and the U.S. losing 4% of GDP if the “Fiscal Cliff” takes effect, gold would seem a natural safe haven. Curiously enough, the U.S. dollar itself is gaining strength in the face of U.S. economic catastrophe (we’ll talk about how that isn’t quite logical in the long term later.) Right now, let’s look at why gold is gaining, even against a strengthening dollar, and some of the forecasts of where it’s going.

  • The London Bullion Market Association recently concluded their annual conference in Hong Kong, where a poll among attendees saw a consensus for gold to rise 7% over the next year, to $1,849 an ounce.
  • Jamie Sokalsky, CEO of Barrick Gold, told attendees at the LBMA meeting that she sees the possibility of $2,000/oz gold next year, as skilled labor shortages, fewer high-quality veins, and the remoteness of new finds escalate the costs of mining operations.
  • Raymond Key, the global head of metals trading for Deutch Bank, also sees gold meeting, and surpassing the $2,000.oz mark next year as the industrialized nations continue massive printing of money.
  • China is accelerating gold reserves acquisition as it de-leverages¬† itself from U.S. treasuries. Even though China is the world’s #1 gold producer, it is also the world’s #2 gold consumer, and is poised this year to pass India for the #1 spot. As an insight to China’s gold reserves position, consider this: Despite their massive importing of gold, gold represents less than 2% of Chinese national reserves, compared to 76% for the U.S.
  • Russia, Brazil, and South Korea are increasing their gold reserves as well, and Germany’s “gold repatriation” movement is catching on in other nations. If the Federal Reserve and Bank of England gold stores are actually less than reported, they will have to buy many tons of gold on the open market to give these nations their gold back.

These prediction may very well bear fruit. If gold can climb against a strengthening dollar, how fast will it grow when the immediate financial peril of the Greek debt and U.S. Fiscal Cliff pass, and the dollar weakens in the face of endless QE?

by David Peterson