There is an important report on gold that was just released called the “Gold Survey 2015,” which was issued by GFMS Thompson Reuters. This in-depth report reveals three events I believe will have a positive impact on gold prices in 2016:
- Demand for worldwide gold coins and bars was up 26% in the third quarter of 2015 compared to the third quarter of 2014.
- In the third quarter of 2015, central banks purchased 132 tonnes of gold, 13% more than they did in the same period a year ago.
- India and China remain solid buyers; in the first nine months of 2015, India bought 642 tonnes of the precious metal and China bought 579 tonnes.
For my longtime readers, this may sound all too familiar. This report just confirms what I have been saying all along: demand for gold is very strong.
But going back to India, this more recent number should give my readers food for thought: in August 2015, gold bullion imports into India rose by 140%. (Source: “Gold imports jump 140% to $4.95 billion in August,” Economic Times, September 16, 2015.) The figure stands at about $4.95 billion, or roughly double July’s figure of 89 tons of gold.
And there are more buyers. Russia, several other formerly Soviet states, and Mexico are gobbling up gold at a record pace this year. (Source: “Kazakhstan, Russia Buy More Gold as Mexico Cuts, IMF Data Show,” Bloomberg, September 24, 2015.)
On the other side of the equation, the world supply of gold is contracting.
Supply Plunge to Push Gold Prices Higher?
First, the number of new gold discoveries has plummeted. According to Goldcorp Inc. (NYSE/GG), in the early 1990s, more than 125 million ounces of gold were discovered. Now, this number is well below 25 million ounces. (Source: Goldcorp Inc., last accessed October 29, 2015.)
When looking at the production price to mine gold, there’s massive constraint as well. Gold prices are currently very close to miners’ production prices. Hence, gold mining companies have slashed their gold exploration budgets while taking high-cost producing mines offline. This is putting a cap on the amount of gold produced.
Gold Price Outlook for 2016
In the same way I feel the stock market is building a huge top here in 2015 (what’s known in technical analysis as “resistance”), I believe gold prices have put in a huge bottom in 2015 (what’s known in technical analysis as “support”).
Two reasons why gold prices could be much higher this time next year: 1) demand is rising and 2) supply is contracting. It’s hard to argue prices of any asset will not move up when demand is rising and supply is declining; that’s the exact situation we see for gold bullion today.