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Gold Price has Nowhere to Go but Up!
Marc Davis, BNW Business News Wire
Gold will soon become the next global asset bubble now that
pivotal global economic events are finally converging to propel its ascent into
record territory. This is the most recent consensus shared by many key business
leaders who have the most at stake.
Among them is Rupert Robinson, CEO of the venerable London-based
Schroders Private Bank, which manages nearly US $200 billion of investment
assets, including a sizeable stake in gold futures and gold-backed exchange
traded funds (ETFs).
He argues that if inflation gathers momentum, long-term interest
rates will rise, which in turn should accelerate the weakening of the US dollar.
This makes gold the ultimate safe haven alternative to holding US ‘fiat’ money
(a currency that is not backed by anything of tangible value).
“If deflationary fears resurface, gold bullion will rise as
investors run for cover and seek maximum security for their money,” he says.
This is especially the case in the event of a currency crisis in
which gold’s buying power will always trump a debased US dollar. And, it is
worth noting, that gold tends to have an inverse correlation to the world’s
dominant reserve currency, which is widely expected to continue its downwards
trend against other major currencies.
“But regardless of your outlook for the economy, gold is a great
each-way bet. It is an investment that works as well in an inflationary
environment as a deflationary one – with bullion, it’s “heads you win, tails you
win,” Robinson adds.
Fears of a protracted slump in the world economy, as well as the
advent of runaway global money supply and inflationary forces, are the ‘hot
button’ issues of the day. But another key portent of higher gold prices that is
often overlooked is the dwindling of gold output.
Most of the world’s major deposits are virtually mined-out and
new world-class deposits are becoming harder to find and more expensive and
politically problematic to bring on-stream. In fact, gold production has been
decreasing at a rate about 4-5% annually since 2001.
This stark reality is not lost on Evy Hambro, manager of the
world's largest commodities fund, the high-flying US $17 billion London-based
Blackrock World Mining Fund. He says gold supply/demand fundamentals, alone,
will help the yellow metal to find a new support level at the hallowed $1,000 an
“The producers don’t seem to be able to reverse the downward
trend in production. Without a higher price, we’re going to see lower
production. So we need to see that higher price ($1,000 an ounce) just to keep
production stable,” he says.
Hambro also notes that central banks are now selling less gold
than in the past and that both China and Russia have ravenous appetites for the
“The trend of sales is now in reverse…Central banks that have
been rumoured to be buyers, like China for many years now, have admitted that
they have been buying gold,” he says. “China recently announced that they have
increased their gold holdings from 600 tonnes to over a 1,000 tonnes. And Russia
continues to buy almost every day.”
Indeed, both China and Russia are two of the biggest holders of
foreign reserves and both have recently voiced their growing disillusionment
with the U.S. dollar (the ultimate debt instrument) and their preference for
bullion. This is why China, the world’s fastest growing superpower, has stated
its intention to spend more of its $40 billion monthly surplus on hard assets
rather than the toxic paper of Western democracies.
This paradigm shift is significant when considering the fact
that most G8 nations have at least 50% of their reserves held in gold, whereas
the reserves of China, India, Russia and Brazil are still at less than 5%.
Hence, the gold reserves of these new power players are expected to grow
All of this is music to the ears of the captains of industry who
have the capital-intensive job of scouring the planet for sizeable new gold
finds and then prying these buried treasures out of the ground. They include
Yale Simpson, the Executive Chairman of Vancouver-based Exeter Resource
Corporation (TSX.V: XRC) (NYSE-A: XRA) (Frankfurt: EXB).
His company believes it has a tiger by the tail in the shape of
its wholly-owned, prospectively world-class Caspiche gold/copper deposit in
northern Argentina. Earlier this week, Exeter announced an attention-grabbing
266% expansion of the deposit’s inferred mineral resource calculation to 19.6
million ounces of gold, 137 million ounces of silver and 4.84 billion pounds of
copper. This represents a total of 33.7 million ounces of gold equivalent.
Simpson concurs that $1,000 an ounce promises to become gold’s
new support level. And he suggests that such a milestone development will prove
to be a potent catalyst in helping to reverse the downward trend in production.
“In particular, a continuation in elevated gold prices
dramatically improves the economics of the world’s larger low-grade porphyry
deposits, such as Caspiche,” Simpson says. “And these prices are especially
positive for their ability to service the capital requirements that are
necessary to build elephant-sized gold/copper mines.”
A great deal of additional work and more major expenditures will
be required before the Caspiche Project can ever hope to go into production. But
time appears to be on Exeter’s side. Indeed, the ‘smart money’ is increasingly
betting that rising bullion prices will continue to gather momentum as inflation
begins to bite.
Additionally, other economic storm clouds are already gathering
to ensure that gold is most assuredly reverting back to its time-honored role as
the world’s ultimate store of value.