The soaring gold price is good news for miners. Nothing makes our industry look more attractive to investors than a gold price that sets a new high every day – touching US$915/oz on Jan. 15
Those with long memories will recall the heady days of January 1980 when gold rose to US$835/oz amid predictions that it would hit US$1,000 – even US$2,000 an ounce! The bubble burst shortly after that and by April 1980, the price had bottomed out at about US$500/oz before rebounding to the US$600-range later in the year. Unhappily, the slide to US$300/oz continued until the end of 2002 when the present price run-up began.
Those of us with long memories are doomed to remember falling as well as rising prices.
This time around, the gold price has risen steadily over a five-year period. The length as well as the strength are notable. For a metal price to rise and stay high year over year is unusual. And this time the forces pushing up the gold price are related to real demand rather than speculation, meaning there are reasons to believe it will remain high.
Analysts point to the faltering U.S. economy and weak dollar, the high oil price, and food price inflation as factors that combine to support the price of gold. Many of them are predicting a gold price of US$1,000/oz and more later this month or next.
Also pushing the gold price upward is the very high demand for gold jewellery in India, for example. The world’s second-most-populous nation has a large appetite for personal adornment. The size of the growing consumer market in China will also buoy jewellery sales. (I’m doing my part. I’ve spent my year-end bonus on a new gold ring.)
Importantly, there is a growing industrial sector that relies on gold. In today’s high-tech world it plays an important role in the electronics and aerospace industries. The demand for gold in dentistry and for collectable coins remains strong.
As much fun as it is to point to the ever-higher gold price, we should remember that it has not kept up with inflation. Perhaps that means there is ample room for the gold price to continue its rise.