Gold Supply Likely to Swamp Demand (prediction of price drop to $550 by 2007)

TheStreet.com ^ | 10/29/2006 | Simon Constable

[Proud_USA_Republican]

An increasing surplus of bullion relative to demand could mean bad news for gold bulls, if the predictions of a new report prove accurate.

Although the supply of gold looks set to drop by 159 metric tons for 2007, demand will plummet even faster, lower by 313 tons when compared to revised estimates for the whole of 2006, according to a new study scheduled for publishing Monday morning by Fortis Bank. The report was authored by a team of analysts led by veteran gold market watcher Jessica Cross, CEO at Virtual Metals, a London-based specialty consulting firm.

Gold prices will likely fall to $580 an ounce by year-end and then to around $550 in 2007, says Matt Turner, commodities analyst at Virtual Metals and a co-author of the report. "A lot will depend on the dollar," he cautions, noting that a weaker greenback could bolster prices.

Turner's forecast compares with a spot price of $596.25 an ounce recorded Friday afternoon by the London Bullion Market Association and a multi-year high of $725.25 reached May 12. Many highly respected gold analysts who have been calling for a fall rally beyond the May high, and perhaps even above $800, may find the new report sobering.

[Proud_USA_Republican]

Potential pain for the goldbugs in 2007.

[Anti-Bubba182]

Lol!

[samadams2000]

No way. Gold and Silver go a lot higher over the next 5 years. Mark this post and come find me in one of the Clinton Re-education camps.

[Flavius]

buy dollar sell dollar buy oil sell oil buy oil

“There is only one side of the market and it is not the bull side or the bear side, but the right side.”

Jesse Livermore quote

[glorgau]

Buying opportunity! Buy Gold! Buy Gold! Buy Gold! ;-)

[jwh_Denver]

"A lot will depend on the dollar," he cautions, noting that a weaker greenback could bolster prices."

NS Sherlock.

[Herakles]

You can sell gold if you want to, but with all the whack jobs in the world, I wouldn't do it.

Just for example, let's suppose the Iranians try to test a nuke and Israel nukes Iran's enrichment sites (you will have to use nukes to get them all, and in several locations). What do you think the price of gold will be then? Even $700/ounce will be in the far rear view mirror!

[Freedom4US]

You mean like the huge run-up during the first gulf war? Wait - never mind. Really, for a currency of last-resort gold hasn't done much, considering the number of destabilizing world events of the last 20 years. Lead, zinc and copper have really gone up percentage wise as of late, however.

[Fresh Wind]

This can't be true. A guy on the radio keeps telling me that gold is going to $2K per ounce very soon. The only thing I don't understand is why is he so eager to sell me the gold he owns just before the price skyrockets?

[Reform4Bush]

I'm a firm believer that the only precious metal worth investing in is tin foil.

[palmer]

Demand will decline faster than that, however, with a rise in jewelry fabrication (up 47 tons) and electronics manufacture (higher by 31 tons), being overwhelmed by weaker ETF off-take (down 108 tons), zero central bank purchases (a decline of 100 tons) and a fall in de-hedging of 186 tons. Other uses, such as for making coins, will be approximately 3 tons higher.

ETF demand is the big unknown and will clearly swing the market as the speculators get in and out. But the net zero central bank purchases is laughable. The gold bears have been talking that up for years and it hasn't happened. Here's a sampling: http://www.mineweb.net/gold_silver/251943.htm

Gold sales by signatories of the Central Bank Gold Agreement (CBGA) fell short of the annual 500 tonne quota at 393 tonnes at the end of the second Agreement year on 26 September. Sales under the remainder of the Agreement, running until September 2009, are unlikely to reach the annual quota of 500 tonnes for the full five year Agreement period, GFMS, a leading source of information on precious metals said in a statement.

The next paragraph has the standard gold bear disclaimer: Barclays Capital, though, does not concur, suggesting that the full sales quota may have been realised, but the figures did not appear in the statistics as they were forward sales.

[CharlesWayneCT]

The gold people sometimes seem to miss that, like oil, when the price goes up, the profit from exploration and extraction increases, which increases the supply of gold. But unlike oil, the uses of gold aren't increasing exponentially, since a lot of it just sits around being used as a substitute currency, meaning if people think they are about to lose their shirts, they'll all start selling their gold into a market with increase supply and dropping demand.

[Old_Mil]

Although the supply of gold looks set to drop by 159 metric tons for 2007, demand will plummet even faster, lower by 313 tons when compared to revised estimates for the whole of 2006, according to a new study scheduled for publishing Monday morning by Fortis Bank. The report was authored by a team of analysts led by veteran gold market watcher Jessica Cross, CEO at Virtual Metals, a London-based specialty consulting firm.

Jessica, the economic right hand keeps saying that Asian countries are getting richer and the middle class in such countries is growing. Historically, such nations have valued gold highly as a store of value and these traditional habits are unlikely to change. So what makes you think that the demand for gold will drop?

[AdamSelene235]

Up $10 today.

[AdamSelene235]

The gold people sometimes seem to miss that, like oil, when the price goes up, the profit from exploration and extraction increases, which increases the supply of gold.

If the cost of energy and materials rises along with cost of gold, the extraction costs also rise.

It is unlikely the gold supply can increase at the 8% per year rate that the dollar supply has increased for the last 11 years.

[AdamSelene235]

You mean like the huge run-up during the first gulf war? Wait - never mind.

Money supply growth was flat during the first gulf war.

[Freedom4US]

Nice chart, but we weren't talking about M3...

[Petronski]

In six months you will be hard pressed to buy an American Eagle for less than $800. There may be a "price" for it on the paper exchanges but increasingly you will be unable to find the actual physical metal.

--May 1, 2006

[AdamSelene235]

Nice chart, but we weren't talking about M3...

So you don't think more than doubling the money supply in 10 years influences prices?

[Herakles]

"Really, for a currency of last-resort gold hasn't done much, considering the number of destabilizing world events of the last 20 years"

Gold prices have been crushed for the pass 20 years for two reasons;

1. The fed was watching gold and using it as an indicator for inflation; logic was, crush gold and crush inflation,

2. If you read deep you will find that during the period the Fed was crushing gold, other groups were taking the trend and making money off the policy. I seem to remember a scheme where a gold company would have a big bank sell the future and then they would dump gold. Needless to say, they were double humping the price down resulting in artificially low prices because they knew what the Fed was doing.

So, if your data is distorted in the first place don't assume you conclusions are correct - better yet, do poor data analysis and bet the farm, I make money every day from people who never learned to do data analysis; have a hunch, bet a bunch, I need more and some people apparently don't.

I'm not big on gold, just information, but I do know one thing for sure; if something big goes wrong and you are still alive, don't try to use the funny money we now call dollars to barter for anything. People in the East and Mid East are use to things going wrong, they don't live in Pollyanna land.