Which Way The Gold Price?
We don't tend to hype the future gold price as do many other gold dealers, partly because it is often difficult to make any predictions. We explain this in our other gold price page which you should read first.
Update as at 4th June 2001
For the past few months, we have become firmer in our opinion of the future price of gold, for the reasons cited in our previous page, but also because of other developments.
- The Past
- Central Bank Sales Will End
- Lower Levels of Producer Hedging
Currencies Less Stable Without Hard Asset Backing
When central bank sales are completed, these banks will have far lower levels of hard asset backing. The ultimate situation would be where every world currency is backed only by reserves of other currencies, in this case it could be argued that the only real backing for any currency would be confidence. This is purely a psychological assurance, and as markets are often driven by sentiment, then it would be possible for confidence in any currency, or even all currencies, to diminish or completely evaporate, leaving all currencies vulnerable to speculation or collapse.
Inflation Levels of Most Currencies
We have heard from several sources that the US has issued more money in the past 13 years than in its entire previous existence. Governments creating an oversupply of money is a direct cause of inflation. The dollar is one of the main currencies, when and if market sentiment turns against it, this will cause its price to drop in relation to other currencies and commodities. The dollar is not the only currency which appears to be over-issued.
Share Prices Looking Vulnerable
We believe that share prices in most world markets look overvalued, in some cases substantially. This must eventually lead to a downward correction at least, potentially a substantial crash.
Low Interest Rates
In many countries, interest rates are at their lowest level for a long time. This is usually symptomatic of attempts to stimulate demand in the local economy, and usually leads to lower inward investment leading to a lower price for that currency. If other world interest rates are low, this creates competition to stimulate demand in all local economies, and can lead to a general weakening of currency prices. Low interest rates tend to occur in recessions or slumps. The low US interest rates may well be intended to ward off a recession.
Impending Euro Introduction
In January 2002, Euro notes and coins will be introduced in twelve of the fifteen EU member states. It is intended to withdraw all "old" national currencies as quickly as possible, possibly by the end of the first quarter. It is likely that many people holding quantities of old banknotes will wish to swap them into gold in the form of bars or coins.
Other Commodity Prices
The prices of other competing hard commodities have increased substantially in recent years, particularly platinum and palladium. Compared with these, gold is looking undervalued.
Increased Gold Promotion Budget
Earlier this year, the World Gold Council doubled its promotional budget for gold to $55 Million, the funding coming from gold mining companies who have doubled their input from $1 to $2 per ounce mined. We believe this will have an increasingly felt effect on the overall demand for gold. By increasing demand, this will increase prices. A similar promotion increase happened to platinum in recent years, its price more than doubled, strangely enough this seems to have increased demand rather than diminished it.
In recent weeks we have had a number of successful professional investors switch money from cash or shares into gold. They have given us various technical explanations, including many esoteric ratios. Their arguments are starting to convince us. When the rest of the market starts to follow their lead, we cannot tell.
We have noticed that in the past year, gold seems to have taken upward jumps. although it has tended to return close to its previous levels, these jumps seem to us to be getting stronger and more frequent. We have not had time to analyse this theory. Our "gut feeling" is that gold seems to want to rise.
The recent cooling of relationships between China and the USA may lead to China selling its US Dollar reserves which could weaken the dollar. If they switched into gold, this would also strengthen gold prices.
UK Eurozone Entry
In the run up to the UK election, there has been some discussion about Britain joining the Euro, and therefore dropping the Pound Sterling. It has been widely commented that the pound is at the "wrong level", and that the "correct level" would be about 15% to 20% lower. This strongly implies a potential devaluation of the pound.
Bank of England Gold Auctions
The last of the Bank of England gold auctions is scheduled to take place in March 2001. We firmly believe that as we near the end of these sales, their downward pressure on gold prices will be removed.
June 4th 2001
November 2005 - $500 Awaited, $1,000 Forecast
At the end of November 2005, we were expecting gold to touch $500 for the first time since 1987.
Pierre Lassonde, the President of Newmont Mining has recently forecast that gold will hit $1,000 in the next 5 to 7 years. We are used to hearing claims and forecasts (of up to £17,000 per ounce) from the lunatic fringe, but this forecast came from a highly respected source, and we have no doubt that it was well-reasoned.
Gold Prices Index
The World Gold Council compile regular and abundant statistics on the gold market.
Bullion Coin Selector Page