As inflation rears its ugly head and future demand for gold promises to overwhelm mine supply, gold’s price will launch a parabolic rise from current levels in the near future. Gold has much, much further to go.
In further edited excerpts from the original article* John Embry (www.sprott.com), chief investment strategist at Toronto-based Sprott Asset Management, goes on to say:
Inflation The monetization of various forms of government debt by the printing of large sums of money, disarmingly referred to as ‘quantitative easily,’ is proving to be the catalyst for accelerated inflation and, as such, if inflation gathers momentum, long-term interest rates will rise, which in turn should speed up the weakening of the anemic US dollar.
U.S. Dollar Furthermore, gold is increasingly asserting itself as a powerful inverse proxy to the dollar. This makes the yellow metal the ultimate safe haven alternative to holding US ‘fiat’ money which is a currency that is not backed by anything of tangible value.
Supply Then there’s the fact that most of the world’s major deposits are virtually mined-out and new ones are becoming harder to find and more expensive and politically problematic to bring on-stream. Indeed, Aaron Regent, president of Barrick Gold (ABX), recently told a gold investment conference in London that major gold mining companies are continually struggling to replace mined-out reserves saying, “There is a strong case to be made that we are already at peak gold. Production peaked around 2000 and it has been in decline ever since. We forecast that decline to continue as it is increasingly difficult to find ore.”
It is interesting to note that the world’s top trio of producers — Barrick Gold, Anglogold Ashanti (NYSE: AU) and Newmont Mining (NYSE: NEM) (TSX: NMC) — each generate between 5 to 8 million ounces of gold per annum which means that at least one new multi-million ounce deposit needs to come on-stream every year just to replace this output. That simply is not happening.
It will not be long before inflation, a debased US dollar, and shrinking global output converge to act a springboard for gold’s ascendency well above the $1,100 level and, at that point, investment demand will explode on a worldwide scale.
The rally in bullion prices is far from over, contrary to what some market pundits are suggesting. It has is merely in a consolidation phase before its next up-leg.
Gold’s price still has a long way to go before it even comes close to matching its peak price during its last major bull run, when it hit an intraday high of $875 on January 21, 1980. To do so it would have to rise to around $2,300 on an inflation-adjusted basis.
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
Posted here: http://www.munknee.com/2010/04/peak-gold-and-inflation-a-perfect-storm/