Fundamentals Support Rising Gold Price in Coming Years (Video)
Michael Lombardi, Founder of Profit Confidential, lays out the fundamental argument for the gold price moving higher this year and into the future. It basically comes down to supply and demand factors. Less and less gold is being mined each year, while demand for the yellow metal from major economies like China and India continues to grow. Meanwhile, central banks are also increasing their gold purchases at rates we haven’t seen in 50 years.
Follow along with this transcript:
“Gold bullion prices I expect to rise in 2015, 2016, and beyond for two reasons. First, the supply of gold is contracting. US gold mines produced 8% less gold in 2014 than they did in 2013. Other major gold-producing countries like Canada, Australia, and South Africa are also producing less gold. The reason for this is the decline in the price of gold. Gold has fallen in price from $1900 an ounce in 2011 to $1200 an ounce in 2014. Those are US dollars. As the price of gold came down, exploration of gold was pulled back. Mining companies pulled back on companies that were not able to produce a profit at $1600 an ounce, $1500, or $1400. So a lot of exploration has been taken off the table.
“At the same time, there hasn’t been a major gold discovery in the world since the 1980s. In 1985, 150 million ounces of new gold was discovered in the ground. Last year, less than 20 million ounces of new gold was discovered.
“On the demand side of the equation, we have world central banks buying 17% more gold bullion in 2014 than they did in 2013. That’s the biggest year-over-year increase in 50 years in respect to central banks buying gold bullion. Central banks have been net buyers of gold bullion since 2009.
“Demand in emerging countries such as India and China is also very strong. In India last year, they imported 8% more gold than they did the previous year. We have to keep in mind that in 2014, the Indian government had tariffs, restrictions on gold importation. Those were lifted at the end of 2014. So 2015 could be a real banner year in respect to imports coming into India.
“I’m lucky enough to travel to India on a regular basis, and I can tell you gold is a status symbol in India. You wear your gold, you show it. Here in America, we buy a nice car and that’s a status symbol. But in India, it’s the gold that you have which is the status symbol. China and India last year, their demand accounted for 60% of all the gold produced in the world.
“So if India and China, they’re buying 60% of the gold, the central banks are buying gold at a rapid pace. Demand is high for gold, but on the near side of the equation, the supply side is contracting. So you have a classic Economics 101 situation, where less supply, more demand will result in higher gold prices again in 2015, 2016, and beyond.”
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