Gold Demand Will Eventually Outstrip Supply

February 9, 2012 | By | Reply More

More optimism has been expressed that gold will exceed $2000 an oz in the not too distant future despite bullion being in “wait and see” mode today according to Hong Kong gold dealers.

Reports that the Greek debt crisis is nearing agreement is said to be bullish for gold and has helped it to recover $15 by mid afternoon EST from yesterdays close. However a Greek resolution seems to have been about to happen virtually everyday since Xmas so we will believe that when we see it !

Supply Of Gold Should Not Be Taken Lightly

Warnings by gold buffs concerning the supply of gold should not be taken lightly. The point is that if confidence in the US and other western economies, and by definition that includes the dollar and other fiat currencies, erodes, more and more investors from central banks and institutions to small retail investors will look to protect their assets values by switching into gold.

The further point to consider is the growth in world population compared to the annual supply mined, particularly as this population growth is largest amongst in those Eastern countries whose populations that have a strong tradition of buying gold, India is the obvious example.

World population has grown by about 15% in the last ten years, mined gold supply has fallen by circa 4% during the same period while China and India continue to increase their annual imports year on year.

Can the Developed Economies Maintain the Value of their Currencies?

Given that the supply of gold is unable to keep up with demand at some time in the future and that it is not beyond the realms of possibility that it may come sooner rather than later, then without a shadow of a doubt the gold price will go through the roof.

Much will depend  upon the developed economies maintaining the credibility of their currencies, at this moment in time unlikely as the consensus is that the US is actively seeking to devalue the dollar in order to make paying its debt interest easier.

The Euro is under extreme pressure as the domino effect is likely to occur. Even after the Greek situation is resolved, albeit temporarily, there is still Italy, Portugal and Ireland waiting in the wings. Now the UK is has announced a further round of Quantitative Easing to the tune of fifty billion pounds, another way of saying we are going to print more money!

Gold Demand More Than Supply a Better Than Even Bet

The likelihood on the eventual gold demand outstripping supply looks better than evens, it is a question of getting the timing right. Even Government manipulation via the developed countries central banks will not be able to hold back the flood gates of demand.

 

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