10 Reasons Why Gold Has Further to Run

There are a great many factors - economic, fiscal policy-wise, geo-political - which determine which way gold will go. Many analysts have said that we are currently in the midst of the ‘Perfect Storm’ for gold fundamentals. While some may consider this rosy glasses positioning, I do not think it is far from the truth, as the fundamentals for this asset class still point to growth.

1) Global Demand vs Supply

For many years, the global demand for gold has exceeded what has been produced by the worlds mines. In fact, mine production has actually declined in the last ten years. With a world demand often exceeding 5000 tons per year, and a global mine output of a bit over 2500 tons, any sane person would conclude that the price of gold should be going up. Indeed it has, but it has much further to go. Canada has indicated it has already passed its ‘peak gold’ point. Add to this that poorly run power infrastructure in African countries that have been some of the worlds largest producers have caused complete shutdowns of the gold mining industry there, and this only becomes a more compelling argument. What would happen to the price of oil, for example, if OPEC stopped shipping crude?

2) Central Banks Have Acted in Unison to Suppress the Price of Gold

It has been well documented that Central Banks have worked together to sell gold into the market from their reserves, a term known as ‘dis-hoarding’, in order to ‘manage’ the gold price. Ultimately, this has to end, because the Central Banks will eventually either run out of gold, or get to the point where they realize that it is no longer smart to do so. The primary reason Central Banks would have any incentive to do this of course if that if Gold remained a ‘non-money’ in peoples minds, then there would be no reason to stop the current out of control trainwreck that printing endless amounts of money has created.

3) Central Banks are Starting to Reverse Course

Central banks in growing economies around the world are starting to buy, instead of sell, gold. Banks participating in this non-sense have mostly been American, European, and ‘Western World’ entities. Asian banks, such as China and Singapore however, are more than happy to buy up gold and create stronger reserves. Russia has also stepped up its demand, with announced intentions of weighting their reserves to 10% of their treasury. This trend is destined to continue, as more and more countries come to the realization that you cannot ‘Print’ your way to wealth, at least not over the long term. The newly-emerging Asian economies are sitting on reserves of about $6.6 Trillion, and a small shift in their portfolios to gold would send prices through the stratosphere.

4) Sovereign Wealth Funds

These behemoths of financial investing entities have sprung up all around the world, from China to the United Arab Emirates.. They are the greatest monstrosity in wealth management history has ever seen. Their sole purpose: to take massive stockpiles of US dollars and buy tangible assets that are not depreciating, so that the owners of these funds are able to diversify their holdings before dollars reach their absolute intrinsic value (which is zero).

5) Inflation Adjusted Value

Many feel that because gold has topped the 1980 market high of $850.00 per ounce that we are due for a correction, and that the price of gold per ounce will once again travel back down to the $250.00 range. What these fine gentlemen have failed to point out, is that if you adjusted for inflation (that is, the fact that the dollar buys less every year in real goods than it did the year before), then gold would have to be priced at over $2200.00 per ounce to even match the last high in 1980.

6) Gold is Real Money - Always Has Been, Always Will Be

Gold has been money for over 5000 years of recorded history. The idea of paper money is not new, and in fact each time it has been tried (when not backed by gold), it has inevitably over–inflated, crashed, and forced a return to gold as money. Why do humans always go back to gold? Because you can’t create it out of thin air. Gold retains the one key attribute of money that is required in order to maintain value and store wealth, and that is it must be rare. If dollars were as common as rocks lying on the ground, they wouldn’t be worth much, now would they? As they become more and more common, they lose more and more value. The world is starting to figure this out, and this is why you see so many people investing in gold now. It has only just begun.

7) Very Few People Actually Own Gold

Some may think, with all the attention gold has been getting in media lately, that everyone must already be in, and the opportunity is past. I beg to differ. Very few people own gold as an investment today. In fact, I challenge you to go out and do some of your own research. Go out and ask 20 people if they own gold as an investment. I think you will be shocked to see how few do. Now multiply that across the entire population, and you will see why there is such incredible opportunity now.

8) The Ongoing Collapse of the US Financial System

Few people truly realize the situation that our banking system is currently facing. The write-downs that have still not been released in regards to losses in mortgage backed securities have still not been reported. Some analysts estimate we have only seen 25% of the true damage already reported, and with what has been reported alone Citigroup, Countrywide, Bank of America, and Merrill Lynch, Morgan Stanley have all been hemoraging share price as if this were the Great Depression. The shoes keep dropping, and we have a good ways to go before its all over.

9) The Subprime Crisis Didn’t Go Away, It Just Changed Its Costume

The entire fiasco we witnessed with the ‘Subprime Crisis’ has given the stage to other things, yet what we aren’t being told by the press is that is has simply morphed and changed forms. The impact of subprime, is that people cannot go out and re-fi their house and pay off those home equity lines of credit they were using to buy those shiny new cars, boats, barbeques, and wide-screen LCD TVs. Instead, people have turned to credit cards, and that will be the next credit implosion. We have seen record numbers of foreclosures, vehicle reposessions, and credit card failures to pay, and the numbers keep increasing. As this happens in the midst of food and gas prices soaring, we will see the economy come to a grinding halt.

As we have seen from previous behavior, the Fed’s answer to this problem is simply to create more money. Unfortunately, the effect of this is to further destroy the dollar of the value, which in turn compounds all of the items noted above, and creates even greater demand for ‘Real Money’, also known as gold.

10) There is Less Gold per Capita Now Than at Any Other Time in History

All through history, one could take a snapshot of the number of people on the earth, and the number of ounces of gold above ground, and the ratio would have been roughly 1 ounce of gold, for 1 person on the planet. In recent times, this ratio has drastically changed, and today there are 6.5 billion people on the earth, and less than 4.5 billion ounces of gold ‘above ground’. This makes gold today more rare than at any other point in time. To give you an idea of the value of gold, in ancient times, you could buy a mans life, for life, for one ounce of gold. It is obvious that by todays standards, the pendulum could certainly swing a long ways back.