When the western world went on holiday for Christmas the gold price looked as though it might attempt a drop to test $775 per ounce, potentially falling from just above $800.
Then a quick dip in the Caribbean, or a trip to the European sun...and lo! We have broken $900 - and all this in less than three weeks!
First, why the sharp move in the gold market this New Year?
The volume of total investment funds held in the United States alone is more than enough to send gold well through $2,000 - if not five figures - in dollar terms. Add to that Europe's investment funds, Asian investment funds, plus the growing wealth in India in particular, where gold is a proven investment medium and not just held for profit for religious and taxation reasons as well.
But to date, gold has received just a tiny fraction of that money.
The troubles of the last year were a starter pistol's shot, turning the attention of investors to gold. As the year of 2007 came to a close and the sum total of investment reasons for holding gold drew the attention of many more investment managers, the potential swamping of the gold market became a possibility.
A number mentioned both by ourselves here at gold forecaster and elsewhere in the past has been that if only one per cent of the funds invested in the New York Stock Exchange were to find its way into gold, then the gold price would move to between $1,000 and $10,000.
Now add European and Asian investment funds to that of the US, and estimate if just one per cent of that money came into gold. You would begin to see the potential for the future gold price.
Before that moves from possibility to probability, however, we have to ask ourselves:
Will the root causes of the present reasons to buy gold persist for long?
We would answer that by asking, "Can you see effective solutions or attempts at solutions out there that will bring stability to the banking system, to the monetary system, and cause a drop in inflation that brings real growth to the globe outside of Asia?"
Unfortunately not! So why should investment managers hold back from investing at least some of their funds in gold?
With the physical supply & demand dynamics of the Gold Market only just forecast to be in surplus this year (123 tonnes in 2008 according to Virtual Metals), few doubt that demand will shoot past supply even without this flood of money and investment. In the first week-and-a-half of 2008, alone we saw more than 15 tonnes bought for long-term investors.
Oh, and please note that the supply of newly-mined gold is set to drop steadily from now on, reducing that surplus still further until the gold market, even without the investment funds, moves to a deficit. This reduces the amount of investment of long-term new money into gold needed to make the gold price rise further.
Yes, the fall off in de-hedging by gold mining companies we expect in 2009 will weigh on demand. But by then, we do believe investment demand will take up that entire amount. (We will be watching this as a danger to the rising gold price, however...)
As the gold market continues to push higher, jewelry demand - which has fallen off because of the high prices - will lift again, we believe. Its value describes wealth better than in the recent past, and we will see a new type of jewelry demand looking for higher quality pieces, replacing the demand for low quality gold jewelry.
The launch of "paper gold" - the gold Exchange Traded Funds - since 2003 has distracted traditional gold investors from their usual focus of speculation in gold mining stocks. Gold shares were largely overlooked by investors for most of 2007, but were the gold price to remain at present levels, more will be expected of the mining companies in terms of matching performance to risk.
As the gold price, rises and the benefits of leverage show themselves in gold shares - and as new gold investors' knowledge of gold mining shares increases - so we would expect gold mining shares to receive more investment, gaining the return of dividends as well as capital appreciation.
We at gold forecaster will attempt to show you the benefits that come from this evolving market in the form of main market gold shares and new juniors that offer outstanding potential against fair risk, as well as highlight the shares from the top, medium and lower categories that may be lagging in their performance and should catch-up.
The complete report contains specific forecast in prices and sector market behavior for 2008. You can read more here at Gold Forecaster...
Jullian Phillips - one half of the highly respected team at GoldForecaster.com - began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.
First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission - guiding currency decisions on the multi-billion foreign Loan Portfolio - before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.
There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.
