My belief that gold prices are headed to $2,500 per ounce is based on the demand/supply equation for gold bullion.
Gold Bullion: Demand
On the demand side, those who ditched the precious metal starting back in 2013 are making a big comeback. I am talking about exchange-traded funds (ETFs) and other similar products. In 2016, ETFs and similar gold funds bought 531 tonnes of gold, the second-highest inflows into these funds on record!
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Previously, ETFs had been net sellers of gold. In 2013, ETFs sold 915 tonnes of gold; in 2014 they sold 183 tonnes; and in 2015 they sold another 126.3. (Source: “Gold Demand Trends Full Year 2016,” World Gold Council, February 3, 2017.)
If you are a regular reader of my column, you’ve seen my articles on how world central banks have been net buyers of gold for years now, and on how consumers in India and China have been snapping up gold. But it’s happening in other countries now, too.
In Japan, gold coin and bar demand in 2016 was the highest since at least 2010. Between 2015 and 2016, the demand in Japan went up 24%.
In the United States, gold coin and bar demand soared 30% between 2015 and 2016. In 2016, the demand was the highest since 2011.
Gold Bullion: Supply
On the supply side of the equation, the situation could not be worse.
As gold prices started to fall in 2013, gold miners drastically pulled back on spending on the exploration and development of new gold mines. This is now coming back to haunt the gold miners.
China’s state-owned gold mining company, Lingbao Gold Co Ltd (HKG:3330), reported that gold production in 2016 fell 11% from 2015. (Source: “Chinese Lingbao Reports 11% Drop In Gold Bullion Output,” Kitco Metals Inc., April 3, 2017.)
Other major gold mining companies in the U.S. and Canada produced less gold in 2016 than they did in 2015.
Gold Prices = Opportunity?
Dear reader, back in 2013 when gold prices were falling, I was one of the only few who called gold an opportunity. I repeated similar thoughts in 2014 and 2015.
As it stands, I still see the yellow precious metal as a solid opportunity for the long term, given the current demand and supply situation. I am not worried about what happens in the short term. I am keeping my eyes on the long-term prize, and it wouldn’t shock me if gold prices hit $2,500 an ounce sooner rather than later.
