Comment by Jim Campbell, Citizen Journalist, Oath Keeper and Patriot.
Forbes Magazine has tended to be a good source of financial advice over the years.
Gold remains a solid, long-term investment and that we should see a long-term buying opportunity in gold sometime this year. Such a purchase could be made either through an ETF, e.g. SPDR Gold Trust (GLD) or physical gold. One can even put gold in their IRA.
Since peaking above $1,900 an ounce in September 2011, gold prices have declined by nearly 40%, settling at around $1,200 an ounce on Friday. I became bearish on gold in January 2013 and discussed why this January 25, 2013 global macroeconomic commentary, citing: 1) the passing dangers of a euro zone breakup (after Spain, Portugal and Greece were bailed out by their richer peers), 2) the recovering U.S. economy, and 3) that gold was highly vulnerable to a major decline after a 12-year bull market. I slapped a 12- to 18-month price target of $1,100-$1,300 an ounce—when gold traded at $1,660 an ounce.
It now appears that the decline in gold prices is nearly over, and that there will be a great long-term buying opportunity in gold this year. Here are three reasons why gold is looking good for the long run.
1. Gold mining production growth to be tepid over the next several years.
2. The outlook for global monetary policy is highly uncertain and incoherent.
3. Indian and Chinese demand for gold will continue to rise
Since gold prices began declining two years ago, the gold mining industry has shifted its focus away from developing new mines to consolidating and reducing costs of existing mines. A recent PricewaterhouseCoopers survey of global gold mining executives shows that 73% of them rank cost cutting, productivity enhancements and consolidation as their top business imperatives in 2015; while only 13% have capital expenditures (i.e. mine expansion) as their top business priority.
This shift away from developing new mines is already impacting production growth. According to the World Gold Council, mine production increased by 4.7% a year from 2008 to 2013. Last year, mine production grew by only 2%.
Our studies also show that the average gold mine has an all-in sustaining cost of around $1,000 an ounce. That is, half of the world’s gold mines would incur losses if gold declines to $1,000 an ounce. For example, Newmont Mining NEM +4.58%, the world’s second largest gold miner (responsible for nearly 5% of the world’s annual gold production), will be forced to cut expenditures or reduce production if gold hits that price level.
Finally, the vast majority of gold production is not hedged. Gold miners are therefore subject to the full force of declining gold prices; should prices decline below $1,200 an ounce, we believe gold mining production growth will stop altogether—thus putting a floor on gold prices.
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