The production of gold keeps falling each year, as all the easy gold has been found. The industry needs higher price for longer to invest in finding new supply
Evy Hambro, Managing Director and Portfolio Manager with the Natural Resources Team, Blackrock Mutual Fund.
His call: There will be no net increase in gold mine supply over the next five years.
His investment idea: Choose gold for medium-term returns.
So overall, the positive fundamentals for gold have not gone away; the dollar remains weak, uncertainty remains in financial markets and most importantly mine production is still falling.
Barrick, the world’s largest pure gold mining company, predicts that mine supply could fall by 10-15 percent over the next five years and despite a significant increase in exploration spending, the gold industry has not found more than it has mined since 1995. All the easy gold has been found, which means the industry needs a higher gold price for longer before they have enough of an incentive to begin to significantly invest in bringing on new supply. With gold hitting new highs, a concern for some investors, it is worth pointing out that in real terms, gold is some way below its previous high. The 1980 peak of US$850 per ounce, when adjusted for inflation, is over US$2,000 per ounce.
(This story appears in the 22 January, 2010 issue of Forbes India. To visit our Archives, click here.)