It can’t be stressed enough; gold prices are setting up to provide big gains to investors. Just pay attention to supply and demand; you will notice how the precious metal’s market is improving fundamentally.
Gold Supply Getting Crushed
We have been tracking what’s happening in the major gold-producing regions closely. To say the least; conditions are getting outright worse. Producers aren’t producing the yellow metal.
Consider this; between 2013 and 2014, gold production from U.S. mines declined roughly eight percent. U.S. mines produced 212,000 kg of gold in 2014 compared to 230,000 kg in 2014. (Source: U.S. Geological Survey, last accessed July 15, 2015.)
This year, it looks like the mine production from the U.S. will be much lower than the 2014 figures. For instance, in the first three months of 2015, U.S. mines have produced 47,700 kg of the yellow metal. (Source: U.S. Geological Survey, last accessed July 15, 2015.) In the same period a year ago, these figures were 53,800 kg. Simple math will tell you that production has declined 11.3% already!
Don’t for a second believe that gold production is just declining in the U.S.
Take a look at the table below. It shows monthly year-over-year percentage change in gold production in South Africa.
|Month||Year-over-year % change|
(Source: Statistics South Africa, July 9, 2015.)
Regardless of the Price, Gold Demand is Soaring
Closely looking at the demand for the precious metal, we see it as the same, if not rising.
To give you some perspective; for the month of June, the U.S. Mint sold 76,000 ounces of the yellow metal in American Eagle coins. This was the highest amount since January, and a month-over-month increase of over 250%. (Source: U.S. Mint, last accessed July 15, 2015.)
We also continue to see central banks buying more gold. Mind you; we have been following them very closely. We are paying attention to the central banks from countries that have very little gold compared to their overall reserves. They are very hungry for the yellow metal.
Take Russia’s central bank, for example. It has been very active in the gold market. In the last six months of 2014, the central bank purchased 113.5 tons of gold. In the first five months of this year, it purchased 42.7 tons of the precious metal. (Source: World Gold Council, July 13, 2015.)
Gold Price Headed to $2,000 Soon?
As it stands, supply is shrinking in the gold market and the demand is solid. Economics 101 say this is a perfect recipe for higher prices ahead.
Over the past few years, the yellow metal hasn’t performed much. And as a result, investors have turned pessimistic towards it. And they have all the right to do so. They are asking if gold prices will ever go back to the highs of 2011.
I am looking at gold for the long-run. I continue to believe that the decline in prices over the last two years was a blessing in disguise. Going forward, I expect the yellow metal to see solid moves to the upside. I am still not ruling out gold to go to $2,000 in the next couple of years.