Bulls still in raptures over long term gold price

Ni untuk yg masih ragu-ragu mengenai pelaburan emas..

by Geoff Candy

Investment in the gold sector is likely to continue for at least the next five to seven years, says Pierre Lassonde, Chairman of Franco Nevada and it will be good for yellow metal.

Lassonde said, "We're still early in the pick up phase of what it means for gold - the place of gold as an investment in the spectrum of asset class and when you look at the money in circulation, when you look at the bond market which is in the trillions - 40 to 50 trillion - when you look at the equity market, another 30 trillion and when you look at how much gold represents out of all of that, we are almost at an historic low compared to the 1970s and 1980s. So my view is that there's still a lot of legroom left in terms of the size that the gold market will fulfil in the investment spectrum.

He added that when asked in the early part of the decade how high he thought gold would go, he said "I believe in two things. One is that the gold price will have three zeros after the first number - I just don't know how big the first number is going to be. We are now at $1200 gold and I do not believe for one second that that's the end of the bull market in gold."

Lassonde says it is important to note that, for the first time since the 1970s, gold investment demand is much higher than demand from the jewellery sector and this is the main reason why the gold price is at current levels.

"First and foremost because the investors of the world - people who have money - have figured out that most of the governments - whether it's in the US or in Europe or in Japan - are going to debase their currencies because of the massive debt load that the countries have acquired over the last 20 years and that is translated into the purchasing of the gold ETFs, purchasing of gold jewellery but as investment in China and India."

"The jewellery market responds to economic 101 which means the lower the price, the more the demand - the higher the price the less the demand. And the investment demand is the opposite of that because it's an insurance market, so therefore the price goes higher because you're willing to pay more for insurance and that is because you think your own currency is going to get devalued, therefore you're willing to pay more for that insurance. So the jewellery market provides a floor for the gold price and the investment demand is essentially your ceiling, and how high that ceiling is going to be depends on essentially the stability of the currency, mostly the US Dollar currency."

Asked then where he thinks the current floor for the yellow metal is, Lassonde says it is very difficult to know and it is a very moveable figure but, says he sees it probably around the $1000 level. "I would say - somewhere between $950 and $1,050 is more than likely where the current floor is, but it's movable."

Lassonde is very bullish on the long term price of gold, not only for the reasons outlined above but, also because of the massive growth coming from China, which he says, is looking like an exponential curve.

"Demand is going up 15% per year and the Chinese Renminbi is going to continue to appreciate against the dollar and that is going to continue to drive the demand for gold in China and you're also going to see the Indian rupee appreciate - and that too is going to continue to drive demand.

"My ultimate belief is that if we get a really crazy gold price, in part it's going to be because of China and with all the deregulation we've seen in China and the Chinese gold market being so alive, it may just turn out to become a bit of a casino atmosphere over there - a gambling atmosphere and it could very well push the gold price beyond anything that we believe is reasonable.""

But, he does caution that the yellow metal has been rising consistently for the last ten years, which is unprecedented.

" If you go back to the 1970 bull market and 1975 and 1976 we had quite a strong retrenchment in the gold price. Now the two are quite different but we could see a year, sometime in the future where the gold price would be lower than the previous year and that one has to always keep that in the back of one's mind. What are the odds of that? I think they are better than 50/50 that it's going to happen.

But, he adds, "Long term I am very bullish. When I look at the amount of debt accumulated by the United States in particular because the gold price is quoted in US dollar, the US politicians have absolutely no guts for another depression and they will always allow the printing press to run to answer their problem and therefore when I look at the long term gold price - very bullish."