Gold to Reach $5,000 Due to Supply Shortage: Report By John Melloy |
Tuesday, 14 Jun 2011 | 2:16 PM ET
An exhaustive report by Standard Chartered
predicts that gold [GCCV1 1527.30 1.10 (+0.07%) ] will more
than triple to $5,000 an ounce because of a lack of supply,
not just because of a surge in demand that most bullion
bugs cite in their bullish calls.
“There
are very few large gold mines set to commence operation
in the next five years,” said Standard’s analyst
Yan Chen in a report Monday. “The limited new supply
comes at a time when central banks have turned from being
net sellers to significant net buyers of gold. The result,
in our view, will be a gold market in deficit, even assuming
flat growth in demand. With the supply-demand balance so
out of kilter, we see the gold price potentially going to
US$5,000/oz.”
The London-based firm is among the first
to focus on the supply-side of the gold equation amid the
many bullish forecasts out there on the metal. After analyzing
345 gold mines and 30 copper/base metal gold mines around
the globe, the team estimates annual gold production will
be just 3.6 percent over the next five years.
100 OZ GOLD AUG1(GCCV1)
1527.30 1.10 (+0.07%%)
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“They make a pretty compelling argument,
especially when it comes to mine supply,” said Brian
Kelly, head of Brian Kelly Capital and a ‘Fast Money’
trader. “Most analysis focuses on demand from China
and India, which of course can disappear as quickly as it
materialized.”
But that’s unlikely to happen over
the next five years as central banks look to further diversify
their holdings of U.S. dollars and as emerging countries
buy more gold in the aftermath of the global paper currency
crisis.
“Currently, only 1.8 percent of China’s
foreign exchange reserves is in gold,” wrote Chen
and the Standard team in the 68-page report. “If the
country were to bring this proportion in line with the global
average of 11 percent, it would have to buy 6,000 more tonnes
of gold, equivalent to more than 2 years of gold production.”
The bold call is among the most bullish
out there. In a Bank of America/Merrill Lynch survey of
global money managers released Tuesday, just about a third
of money managers felt gold was overvalued. However, that
is the highest reading in that survey in more than a year.
Standard Chartered recommends that clients
buy shares of smaller gold miners to get the most upside
from its prediction but also said clients could buy physical
gold and gold exchange-traded funds.