Case for Gold Prices Beyond $3,000/Oz Remains Strong
The price of gold has come under fire recently…so, has my gold prices outlook changed?
On November 25, the yellow precious metal dropped the most it has within a day (open to close) in a while, which opened the floodgate of investors questioning whether gold is worth the investment.
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So, here’s my gold prices outlook that may be bold but it’s worth sharing: the lower the price of gold goes, the better of an investment it will become.
You see, it’s one thing to call the yellow precious metal a useless investment, but it’s another thing to actually pay attention to what’s happening. There are solid developments in the gold market that could send the price of gold soaring well past $3,000.
The sell-off in gold is a welcome event. But more on this later.
Gold Prices Outlook: Central Banks Keep on Buying; Investors Rushing in
The gold market has a supply and demand issue. The demand for the yellow metal remains robust, while the supply side has some massive headwinds ahead. This basic economic problem makes the case for higher gold prices in the long-term.
Central banks are continuing to load up on gold. The mainstream does a bad job of covering this story, but it seems like central banks want gold at any price. It makes sense, too: gold acts as an anchor to their reserves that are filled with fiat currency.
In the first three quarters of 2024, central banks have purchased close to 694 tonnes of gold. (Source: “Gold Demand Trends Q3 2024,” World Gold Council, October 30, 2024.)
Central banks have been net buyers of gold since the global financial crisis of 2008–2009, and the message in their actions is loud and clear: they are not stopping anytime soon.
It’s not just the central banks. Investment demand for gold is increasing, too, by a very large amount. With the price of gold trading at record levels, do investors feel like they are missing out?
In the third quarter of 2024, gold investment demand (this includes exchange-traded funds, bars and coins) surged to 364 tonnes. It was up 132% year over year!
Gold Discoveries Remain Scarce
Looking at the supply side…
Miners are currently producing decent amounts of gold. It makes sense: the price of gold is high, so they have significant incentive to produce.
In the third quarter of 2024, gold mine production increased six percent year over year.
But miners are finding themselves confronted by a giant wall.
Discoveries are far too few compared to what they used to be, and they don’t provide as much gold.
In its recent analysis of gold discoveries, S&P Global stated that “Recent discoveries are scarce and smaller in size, with an average of 3.5 Moz compared to the 5.5 Moz average from 2010 to 2019. None of the discoveries made in the last 10 years have entered the list of the largest 30 gold discoveries, supporting our long-held view that the decadelong focus on older and known deposits limits the chance of finding huge discoveries in early-stage prospects.” (Source: “Gold from major discoveries grows 3%, although recent discoveries remain scarce,” S&P Global, August 8, 2024.)
Note that “Moz” in the quote above is the abbreviation for “million ounces.”
Discoveries eventually lead to production, but if discoveries are small, how do you think gold production will look?
Gold Prices Outlook: Why Prices Are Headed Much Higher
Dear reader, I find it comical that everyone seems to be fine with bitcoin closing in on the $100,000 mark, while gold gets nothing but hate.
Earlier in this article, I mentioned that the sell-off in gold is welcome. That’s because, over the past year or so, gold prices had an almost vertical move to the upside. The price for the precious metal was below $2,000 an ounce around this time last year, reaching an all-time high of around $2,800 an ounce not too long ago.
Vertical moves are not usually sustainable. So, gold selling off a little bit could be healthy, possibly taking out the speculators.
With all this said, I still believe that the case for higher gold prices remains intact. Once again: the lower the price of gold goes (if it happens), the better of an opportunity it will become.
