28
Oct
2008

Gold Investments Market Update – Gold Supply/Demand Fundamentals Remain as Sound as Ever

After rising yesterday, gold is up some 1.5% again today and has continued to consolidate in the $700/oz to $760/oz range. Further consolidation is likely necessary after the sharp fall in recent days.

Bearish sentiment towards gold remains at extremely high levels with the usual uninformed suspects calling for further falls in the gold price. While further falls are possible, nobody has a crystal ball, investors would be wise as ever to concentrate on the medium and long term fundamentals rather than on short term speculations. Speculators, especially those using leverage, continue to be decimated in all markets on the unprecedented volatility being seen in all financial markets but especially in the stock markets.

Investing is about focusing on the long term and gold continues to be the only asset class that has risen since the start of the credit crisis being up by more than 12% – from $650/oz to $730/oz. Most stock markets are down by between 40% and more during the period.

Gold’s performance in euro and pounds has been even more impressive since the start of the credit crisis. Gold prices in pounds have risen from £330/oz to £469/oz for a return of over 42% in the period. Gold priced in euro has risen from €475/oz to €586/oz for a return of more than 23%.

Indeed some currencies including major currencies such as the British pound are down by more than 26% against the US dollar in the last year.

European investors would be wise to ignore the catcalls from those questioning gold as a safe haven and continue to remain properly diversified with an allocation to gold within a properly diversified portfolio. Leveraged speculation should be cautioned against right now – it is the preserve of the casino and the casino always wins.

US Federal Reserve and coordinated central bank interest rate cuts internationally from already historically low levels and negative real interest rates in many countries internationally will likely result in higher gold prices in the medium to long term.

Especially given the extremely bullish supply demand situation in the gold market.

International demand remains near record levels with deepening shortages and huge demand in much of the western world, the Middle East and India.

Meanwhile, supply remains anemic at best. Gold mining production worldwide fell 6% during the first-half of the year compared with the first half of 2007, the World Gold Council said Monday. Totaling just 590 tonnes between April and July, global gold mining output was the lowest since 1996 according to data from the US Geological Survey and this despite rising gold prices in recent years.

Mark O'Byrne
Executive Director