If you believe some prognosticators, the price of gold is headed for US$2,000/oz before very long. That estimate came from research published recently by Paris-based CREDIT AGRICOLE CHEUVREUX. The company’s London-based mining industry analyst Paul Mylchreest made the prediction in his January 2006 United Kingdom Sector Report. (It is available in its entirety at www.gata.org/CheuvreuxGoldReport.pdf.)
Mylchreest’s expert opinion is that the mid-cycle gold price will be US$900/oz, and a price spike as high as $2,000/oz is not impossible. He believes that central banks are holding 10,000 to 15,000 fewer tonnes of gold than the 31,000 tonnes they report. He says the banks have been “covertly selling” gold through central bank lending. If the banks cannot cover their short positions, the price will skyrocket.
More upward pressure on the price will be felt because there is a global gold supply deficit. Mylchreest says the deficit is 1,300 tonnes/year, compared with gold mine output of 2,500 tonnes/year. When “official” central bank sales are factored in, the deficit is still 700 tonnes. And there are signs that some central banks, in Russia particularly, are beginning to buy gold.
If that is not enough to convince the reader, Mylchreest compares the U.S. dollar and gold. Gold comes out on top as the “ultimate store of value and method of payment.” He has little faith in the dollar when it comes to protecting investments against periods of either inflation or deflation.
No one can accurately predict the futurefor the gold price or even the chance of rain tomorrow. But major gold analysts all appear to have their rose-coloured glasses on these days. There is consensus that the price will continue to rise for perhaps a few more years. And the longer the price remains strong, the higher their estimates become. Let’s hope their predictions are more right than wrong.