Finance

Gold Experts See Gold at $2,000 – in 2015 or Later

 

by – Mike Fuljenz

Scotiabank’s recent mining conference featured a panel of gold experts with their views for 2015. The predicted prices were all over the map, but most specialists admitted they had no real way of knowing. In fact, host Andy Montana, director of ScotiaMocatta, said gold would stay “right where we are now.” Two other panelists, however, foresee $2,000 gold, either in 2015 or surely within the next four to five years.

“We may be in the trough now,” said Marcus Grubb, managing director of investment and strategy for the World Gold Council. Since gold’s average rise from a trough has been 90%, “that would put you at $2,000” (within four or five years). By contrast, Rob McEwen, chairman of McEwen Mining, said that we could reach “two grand” much faster, in 2015. He also said that gold will ultimately peak at $5,000.

Grubb cited Asian demand and central bank buying as two long-term engines of growth for gold, while McEwen defended his prediction of a more rapid rise to $2,000 by citing the rapid monetary expansion in the U.S., Europe and Japan. He also said that inflation is worse that the official statistics say it is, and that the dollar will take a turn down again. He sees money “moving out of dollars” and into hard assets.

Five Fundamentals (& Two Wild Cards) That Should Drive Gold Higher in 2015

After 12 straight rising years (2001-12), followed by a down year (2013) and a flat year (2014), where will gold go next? Will gold resume its multi-decade bull market or fall further during the months to come? Here are five fundamentals (and two wild cards) that could push gold to $1500 or higher in 2015:

Central bank buying accelerated in the second half of 2014, even as gold prices declined in terms of the U.S. dollar.  Gold had a great year outside the U.S. Gold has been rising strongly in terms of most other currencies, none more so than the Russian ruble, where gold rose about 65% in 2014 (due to the ruble’s 60% fall to the dollar). Russia bought over 150 metric tons* of gold in 2014. Russia has now increased its gold hoard every year for nine straight years. Through the first 10 months of 2014, Russia’s gold purchases have already topped the previous record of 139.7 tons in 2010. Through October 31, 2014 (the latest figures available), central banks have bought a total of 335 metric tons vs. 324 metric tons in the same 10 months of 2013. We expect this trend of rising central bank gold buying to continue in 2015.

Gold miners are cutting production, which will eventually lead to a supply shortfall and higher prices. When the price of gold kept rising each year from 2001 to 2012, many mining companies explored for gold in remote places with small gold deposits, in the belief that gold would keep rising to $2000 and beyond. Since 2001, the average gold content per ton of ore has fallen from 2.5 grams to under 1.7 grams. Since the average cost to mine an ounce of gold is $1168, many mining operations were closed down when gold fell below $1200. (In 2010 there were six gold discoveries that promised two million ounces of gold or more, but in 2011 there was only one and in the last two years, none.)  It’s harder and harder to find economical gold deposits, so new gold supplies are down, due to gold’s low price.  At first, recycled scrap made up the shortfall in supply, but gold supply from recycling scrap fell to a 7-year low in 2014.

ETF demand leverages gold’s rise (or fall). The advent of gold exchange-traded funds (ETFs) in 2004 clearly helped leverage the price of gold higher, but that sword cuts two ways. Throughout most of 2013 and 2014, the Wall Street crowd stayed out of gold, but the Wall Street herd usually invests in what’s hot, selling anything that falls. If gold should turn hot, the Wall Street crowd could quickly jump on the gold bandwagon. Hedge funds are slowly turning bullish on gold. The net long position in gold and futures options rose for four straight weeks in late 2014, reaching the most bullish gold position since August. When investors buy the SPDR gold ETF (GLD), the ETF must buy physical bullion to back up demand, so ETF buying is a “virtuous circle” of demand, causing gold to rise, thereby attracting more ETF buyers.

Asian demand is almost certain to rise, due to a relaxation of government gold import controls in India, and a thirst for gold as an currency hedge in China. Between them, China and India are home to 30% of the world’s population, but they account for over 50% of global demand. China is the world’s #1 gold producer and #1 consumer, buying over 1000 metric tons per year on the official markets in Shanghai and Hong Kong, with an undisclosed amount bought by the central bank in Beijing. Meanwhile, India has repealed its “80-20” rule, which required gold dealers to export 20% of the gold they import. That was a money-losing proposition for dealers, since imports were subject to a 10% duty (tax), forcing dealers into a money-losing trade. This repeal came at the start of India’s wedding season, boosting demand in India.

The U.S. dollar will either fall or flatten out, giving U.S. investors an advantage in the gold market. In 2014, gold was flat in terms of the dollar, but it was up over 10% in terms of most major currencies, since the dollar appreciated by 10% or more against most other currencies, including the two biggest currency blocs, the euro and yen. In dollar terms, we’ve seen a “double bottom” of $1142. First, we saw gold hit a multi-year U.S. dollar low of $1142 on November 5. That was the same day that the Daily Sentiment Index survey of traders found that only 3% were bullish on gold. Shortly after that, gold rebounded to $1200 in mid-November and then fell to an overnight low of $1142 on December 1. This amounts to a bullish “double bottom” chart formation, which implies a “W-shaped” recovery in the price of gold.

Two wild cards, not yet on the horizon but always a threat, are (1) a terrorist strike on America, or (2) a major stock market crash. We haven’t seen a terrorist attack on American soil in over 13 years, and we haven’t seen a major stock market crash in six years, so Americans are beginning to feel secure enough to pour the majority of their assets into stocks and bonds, ignoring gold. Gold’s last two big bull market surges began (1) shortly after September 11, 2001, and (2) after the major stock market crash of 2008. If we see an attack on America or a major stock market crash in 2015, we could see investors turn to gold in a major way, providing a 50% to 90% gain (to $1800 or even $2200) in the next three to five years

P.S.  I didn’t mention the word “inflation” once in this article. Gold is far more than an “inflation hedge.”

*A metric ton (or tonne) is composed of one million grams, equivalent to 32,150 Troy ounces, or 2,204.6 pounds.

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mg4
6 years ago

This is the best analysis of gold prices that I have ever seen. Thank you very much for taking the time to explain how the various forces in the market shape gold prices.

Paula
6 years ago

Honestly PAULE, every time I read a financial article on AMAC, I have to find your comment to put it in the proper perspective. Maybe they’re hiring? Thanks.

PaulE
6 years ago

The first paragraph of this article summed up just how little the so-called experts can accurately predict where gold, or for that matter any other precious metal prices, will be in the next 12 months, much less the longer term. The reality is the primary value of individuals owning gold is as an inflation hedge. That’s it! It is not an investment on which you should expect to “make money”. There will be years, if not decades in some cases, where the price of gold stays relatively flat.

Can we see a price jump in the value of gold in the future? Sure, but almost all the reasons associated with any such jump would be centered around a fear driven trade. What I mean by that is either fear of a collapsing dollar, due to a significant and sustained drop in the value of the dollar, or some meaningful global war / terrorist event. Barring either a true major currency collapse or wide-spread global conflict, it is highly improbable that gold will ever see $5,000 an ounce. Such a price in gold would reflect the total disintegration of the multiple major world currencies or terrorists finally using the nuclear option on major targets. Should either event come to pass, the least important thing on your mind will be the price of gold. You’ll be too busy either fending off the massive hoards of rioters / looters looking to steal whatever they can or people just trying to escape from blast zones. So the bottom line is the purpose of owning gold, or any other precious metal, is simply to preserve the value of your existing wealth relative to the whatever fiat currency in existence is relative to inflation. The rest is fear mongering or wild speculation.

grania
6 years ago
Reply to  PaulE

Good morning, PaulE. I complement you on cutting through it. Globally, things are such a mess that it’s hard to imagine that anyone who knows the future.

I’d like to add a few points. First, the person writing this article speaks for the coin company that advertises at AMAC and is endorsed by them. After selling a person some bullion coins at a good price, they’ll quickly try to steer customers to “valuable coins that can only go up in value”. I feel like an extra in Wolf of Wall Street when they call me; their attempts to sell me precious coins is glib, well rehearsed, and somewhat condescending when asked hard questions. Really, if these coins were such a good value, why sell them to me for a commission instead of buying them for themselves?

The other thing they suggest is gold or silver IRAs, where the bullion is kept in storage. Nobody should have gold or silver bullion unless it’s in their possession. There are just no ironclad guarantees that the investor would ever see it if it’s “in safe storage”, a mutual fund, or a retirement commodity held for you. I have minimum knowledge, but suspect the best way to hold bullion is pure silver 1 oz coins or other easily identifiable bullion. And there are better companies for getting 1oz silver or gold bullion (less to pay over “spot”) than this outfit.

Please, correct me where I’m wrong. I’m a learner, a beginner, in this whole coin-bullion investment endeavor.

Ivan Berry
6 years ago
Reply to  grania

Grania, if I may be so bold while waiting for PAULE to respond: you seem as a beginner to have a pretty good start in understanding. As rare coins go, they probably are better than rare stamps. They at least have a “melt” value.
Along with bullion coins and even bullion bars, don’t forget the old silver coins from yesteryear: dimes, quarters, halves, and silver dollars, that often sell for less per silver content than the 99.x fine.
You are also right that you should “take possession.”
There is also the problem that Congress put a exchange rate on gold coins. The old $20 gold piece and the new 1oz coins are, as currency, limited to a $50 transaction. Not sure how they plan to enforce that, but there it is…1200 or so as metal; 50 as money. The 1/10th ounce gold coin is stamped at $5.00. I avoid gold bullion coins for that reason.
IRAs also have the risk that Congress is not ablidged to honor previous Congresses and may change the rules as they go along. Don’t forget the threat of wealth confiscation, should they so desire to go that route.

In the event of a total meltdown of the world economy (however likely or unlikely that may be), the underground economy (the so-called black market) would probably prevail, at which point lead and steel would become a good envestment to have on hand as well.

grania
6 years ago
Reply to  Ivan Berry

Thanks for that information about gold bullion coins. That’s outrageous.. And thanks for confirming my impressions.

I found this self-introduction to coin collecting to be appalling. Silver Bullion has a value, so there’s an underlying value in silver coins that’s understandable. I could see that owning some current silver dollars or easily identifiable bullion from a reputable mint, through a reputable seller, as a nice way to have an alternative to cash if necessary.

But the rest of it? My gosh. I’ve done enough research to realize that the cost of coins is all over the place, and verification is important. I did purchase some ancient Roman coins, but only of so-so quality, but preserved enough so I have the experience of owning something someone used over 1500 years ago. I was surprised how inexpensive they can be, and how expensive those same coins (all of comparable quality) can be.

PaulE
6 years ago
Reply to  grania

Grania,

First off, you’re right to notice the obvious conflict of interest between the various sponsors of AMAC and AMAC’s endorsement of those companies. Sadly, that exists almost everywhere. So you just have to realize that an article promoting a particular solution, that just happens to have elements that one or more sponsors just happen to sell, might not be as unbiased as you thought. As always, simply be aware that such conflicts of interest may exist and be cautious.

Now I answer your other questions as directly as possible from my perspective:

1) In my view, you should stick with bullion coins or bars. The objective is to pay as close to the spot price of the metal, be it gold, silver or platinum, as possible. You can find the current spot price of all three very easily on the web, so don’t rely on what the dealer says the current spot price is. If the spot price of gold is $1,200.00 and ounce, you don’t want to be spending $1,500.00 or more for something you’re only be able to sell at the melt value of $1,200.00. Does this make sense to you?

2) Stay away from so-called “valuable coins that can only go up in value”. They are usually massively over-priced. Unless you are into buying truly rare coins for their numismatic value and can distinguish between them and common date, common condition coins older coins, which 99 percent of the public CANNOT, what your being sold is likely over-priced low to medium grade condition fairly common coins. From your comments, you seem to sense correctly that if these coins were so good, why would any dealer sell them at prices far below what they would be worth in the near future.

3) Stay away from gold or silver IRAs. They have high yearly maintenance fees and you have no real idea if there is any actual precious metal being stored on your behalf. A lot of stored bullion is in so-called “pooled assets”, meaning you have no dedicated precious metal set aside strictly for you. Google Morgan Stanley and bullion storage to see one example of how customers of such accounts were paying fees for accounts with NO bullion in them.

4) You want to have any gold or silver you buy in YOUR possession. That is the only way to know that you have the precious metals or coins you’ve purchased. Either store what you buy in a safe, savings deposit box or other means that allows you ready access on short notice. Also in any sort of financial crisis, do you think a storage company is going to be all that responsive to your attempt to have them ship your precious metal or coins to you? Morgan’s defense was “Everyone does this.”

5) Stay away from precious metal mutual funds or ETFs. In the event of a stock market crash or any sort of financial crisis, they will drop along with the rest of the market. Also, these funds are supposed to have the actual silver or gold stored somewhere to maintain the value of the fund. See item 3 above and realize that those so-called pooled assets may or may not actually be there and that the companies managing these funds may have over-subscribed the number of shares relative to the actual amount of precious metal on hand.

Does this answer all your questions?

grania
6 years ago
Reply to  PaulE

Thank you…..it’s just as I suspected. I found a source that sells silver bullion ingots and dollars for not too much over spot, and no extra fees. I didn’t get many, just enough to develop a feel for the transaction. As far as ancient coins….I purchased a few, very cheaply and so-so quality, but interesting. I just don’t get the point of having something as a hedge unless it has an agreed upon value.

These predictions about gold seem bizarre, but I know nothing. The best thing to do I’d think is to go to estate sales and see if any of the old jewelry and charms etc being sold as junk has gold content. Then, keep it as is but knowing its value if gold really does zoom.

PaulE
6 years ago
Reply to  grania

Grania,

Gold, silver and other precious metals are meant to be purchased as a hedge against the effects of future inflation and its erosion of the value of fiat currency over years or decades. Remember, you should treat gold and silver as a store of value (wealth), not as an investment from which you expect to “make money”. All fiat currencies, which today are most major world currencies that are NOT backed by hard assets, lose value over time due to inflation. As an example, our own dollar has lost 98 percent of its value in the past 100 years. Other fiat world currencies have also experienced loses in value over the same amount of time.

Where people get themselves into trouble is they buy into the fear mongering of some dealers pitching “the end of the world is right around the corner and gold will soon shoot up to $5,000 an ounce. You have to buy now!” First off, for gold to rise to that level, you would need a major global financial meltdown. I’m talking something that would make 2008 look like a day in the park. In that sort of scenario, governments around the world would be falling, rioting and looting would be wide-spread, and society in general would be collapsing. Under those conditions, having a gun and lots of ammo would be far more beneficial to maintaining you and your family’s safety than some gold stashed away.

Secondly, if precious metals were about to explode upward the way some dealers talk, they would be complete idiots to be selling it at current prices to the public.Seriously, if you knew that gold would likely be worth $5,000 an ounce in two years, why on earth would you be selling it today for $1,200 an ounce, which is less than a quarter for its future price?

On your idea of buying old jewelry at estate sales, you have to be very, very careful. One, most people have any “junk jewelry” checked out before such sales start to make sure what they’re selling is really not worth anything above the price they’re putting on the label. This is especially true of any estate sale being run by a third party. The first thing these folks do is get an appraisal of everything beforehand. So don’t expect to pick-up a piece of grandma’s old jewelry for $20 and find out it’s worth hundreds or thousands later. More likely, you’ll find that old piece of gold jewelry is really just gold plated and worth half what you paid for it. If you are lucky enough to find someone dumb enough to be selling real gold jewelry for junk jewelry prices, that is a rare exception indeed.

Ivan Berry
6 years ago
Reply to  PaulE

As usual a dealer’s perspective. And regarding the statement that he hadn’t mentioned “inflation once” in his article, he did quote Grubb who cited monetary expansion and who said that inflation was greater than the statistics show.

One thing that so many ignore is that the central banks can purchase these ” tonnes” of precious metals with fiat currency. The Fed could, by printing (or digitising) about 1200 dollars or so, purchase an ounce. It’s much easier to print currency than mine gold. Much cheaper, too. So, how are the central banks operating as they aquire the metals? How are the ETFs storing “your” gold? Does anyone know? Do they ever take delivery?

Relative to the price of oil currently, the price of gold is high. The oil glut may be short lived, but there is no likelyhood that there would ever be a gold glut. Not ever. At a certain point, scrap gold may not just fill the gap for demand, it may someday become the primary source for the metal. This especially, should a world economic collapse actually occur.

So the caviat: beware experts, economically, governmentally and even medically. They have too often been wrong. It’s time to do a little more critical thinking of your own (not you PAULE, you seem to get it).

Robert Qualls
6 years ago
Reply to  Ivan Berry

How do you think central banks purchase gold? With their cattle and camels? Big shiny Yap Island round rocks? Other metals like tin and copper? Of course, they buy it with their OWN currency, if it is “convertible” like the dollar, Euro, or Pound, and in one of those currencies if theirs is not, like, say, the Venezeulan bolivar. The gold producers are betting that the liquid “money” that they are getting is valuable to pay their employees and overhead, and give them bankable profits and potentially dividends to pay their investors, and as such has more current value, at least to them, than their relatively illiquid hard commodity, which might suit some employees as wages, but wouldn’t be directly accepted to purchase their benefits or pay any other bills incurred by the mine/smelter owners. This is true of any non-perishible hard commodity. People are always exchanging tangible goods for an intangible promise to pay, as this is how the “money economy”, as opposed to a barter economy, works. But this process can be distorted if it becomes a known fact that something which doesn’t by nature perish will have lots more value later. We could see this when I was a lad at a big scrap-metal yard in our town. If scrap prices were low, they would buy all that they could and hold on to it, selling essentially nothing. Once prices reached where they wanted them to be, they would sell this vast horde as rapidly as they could, before the price could be driven down by everyone else in the business doing the same thing. This only ended a few years ago, when the prosperous family which had owned the yard was bought out by a publically-held company, which can’t very well report no income or no profits for several consecutive quarters and just explain to its shareholders in the annual report or to the SEC in its 10-K, “Hey, we won’t be making any money for a while until scrap prices go up, we’ll just buy more and bide our time.” But I learned a little something about the nature of metal markets, whether ferrous or nonferrous.

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