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Standard Chartered have just made a big, bold, bullish call on gold (via Zero Hedge). They see the precious metal heading as high as $5000 a ounce.They see rising demand and flat supply as the reason for this price increase. Notably demand from India and China is on the rise, and that’s going to push prices higher. Further, demand from central banks, which have now become gold buyers over concerns associated with the dollar, adds to bullishness. Finally, new supply will be held off the market, because it will be hard for firms to make break-even on exploration and production.
There timeline is as follows:
- From 2011-2014: Demand from rising income growth in India and China rises, but demand due to U.S. negative interest rates declines as rates increase. Still, bullish for gold’s price.
- From 2014-2018: Mine supply comes on the market at the same time U.S. rates go positive. Gold prices slide, speculators exit the market.
- From 2018-2020: Market hits equlibrium, but that prices rises considerably over time because demand moves much higher in China and India.
- The result: $4,869/oz gold.
Standard Chartered’s advice is to invest in physical gold or if you’re taking on a lot more risk, invest in junior gold miners.
From Standard Chartered:
We conclude that gold production growth will be limited, which will continue to fuel the gold cycle. We believe demand will be driven by continued growth in per capita GDP in China and India, a weak US dollar and high inflation, which have fuelled doubt in the creditability of paper currency. Ironically, central banks, which collectively had been net buyers of gold until 2010, would also be a powerful force driving gold demand.
It’s worth having a look at the firm’s evidence for this new super-cycle.
The gold price has been moving higher will gold major miners have waffled. Hence, buy physical gold.
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