CANADIAN MINING PERSPECTIVE: Gold price testing upper limits

Sometimes I think CMJ readers like nothing better than the price of gold. It is a topic that always get's them...



Sometimes I think CMJ readers like nothing better than the price of gold. It is a topic that always get's them contemplating. Given their collective intelligence on the subject, their ponderings are often prophetic.


We asked last November, as the price rose toward record levels, how high our readers thought it could go by the end of 2009. The price topped out at US$1,212.50 on Dec. 2, and our readers pretty much got it. According to our unscientific poll, 30% of readers thought it would be in the US$1,101-$1,200 range and 33% thought it would be between US$1,201-$1,300.


I consider the result – that three out of five readers were so near the actual number – a vote of confidence in our readers' knowledge of the industry.


In September the gold price broke the US$1,000-barrier amid much cheering. It reached US$1,000.75 on Sept. 8, eventually reaching US$1,008.25 on Sept 11, US$1,018.50 on Sept 17, and US$1,014.00 on Sept. 22. The price fell back to the high-900s in between these peaks, but its continuing strength was good news to everyone.


That month we asked our readers what they thought the gold price would remain above the US$1,000 level for the remainder of the year. Two out of three thought the price could be maintained, and they were correct. Gold finished 2009 at US$1,087.50/oz. In fact it closed above US$1,000 every day for the last three months.


The third of CMJ readers who thought the price would retreat, are probably not sorry they were wrong.


I confess to being a bit of a gold bug, and I applaud the strong price. Twenty-five or 30 years ago the gold price had a direct inverse relationship with the American dollar. That relationship continues, but it is no longer the sole predictor of the gold price. Today's experts factor in the price of oil, the relative economic strength of many European and Asian countries, and the supply-demand situation. Price prediction has become more complicated.


A few rumours have begun circulating among analysts that the gold price bubble is about to burst, as did the bubble of the 1990s and the mortgage fiasco of the 2000s. They point at the real shrinkage in the U.S. stock market during the past 10 years, and caution that the end of ever-rising gold prices is near.


I think these pessimists are wrong. To me it seems that when the American stock market contracts, more investors would put their money in gold.


I'll go out on a limb and predict that the price of an ounce of gold will continue to rise in 2010. How high? How quickly? That I do not know, but if I were to guess, I'd feel comfortable with a 10% to 15% rise rather than the 25% gain that occurred last year.


Feel free to respond to our Hot Topic question on the subject. We will compare notes in 12 months.


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