America’s most trusted gold investment resource.
Blanchard and Company, Inc. has reformed our
economic research unit and the work is
being headed up by Blanchard
Chairman and CEO, Donald W. Doyle, Jr. and
Neal R. Ryan, VP and Director of Economic Research.
Should you have any questions, comments or
suggestions for our economic research team, please
email them at BERU@blanchardgold.com.
Blanchard Sees Five Factors Driving
Gold Higher in the Coming Months
1. U.S. AND GLOBAL MACROECONOMICS
Ongoing inflationary pressures, the massive U.S.
trade deficits, and the move away from the dollar as the
global reserve currency will all work in favor of higher
gold prices in 2006. Will the Fed battle inflation by
continuing to raise interest rates while choking off
economic growth or grow more tolerant of higher levels
of inflation in order to keep a satisfactory growth rate?
It’s not an easy situation to gauge, but past Ben
Bernanke speeches hint at him being much more afraid
of deflation than inflation, so we believe a quicker end
to rate increases is in store, which in turn will further
boost metals and tangible asset prices.
2. Indian and Asian Markets
Gold ownership for Chinese citizens was legalized
in 2004. A system for selling bullion to the largest
population in the world is getting off the ground and the
effect on gold demand will be staggering. Rumors abound
in the gold market about covert Chinese bank purchases
that are not yet reflected in Central Bank totals.
3. Central Bank Sales Slowing and
Producer Dehedging
Central bank gold reserve sales in the first half of
2006 have been significantly below activity in 2005
according to the World Gold Council, and the
continued reductions of hedge positions by producers
(dehedging) are creating a solid base price for gold. On
the flipside, some central banks (Russia, Argentina,
South Africa) are buying more gold to hold in reserves.
Rumors regarding diversification into gold by other
Asian central banks are helping support prices.
4. Gold Mining Production
Nearly every major gold producer missed
production targets in 2005. As a result of mine
disruptions and increasing production costs, global
production is continuing to sag. South Africa, the leader
in global production, has seen annual gold-mining
output fall at an average of 4% a year over the last 25
years. Bringing new mines on-line is a time consuming
and at times economically prohibitive process that adds
years onto potential supply increases from mining
production. Combining these economic constraints on
production with few meaningful discoveries in the last
decade has created a void in mine production that will
not easily be made up in the next five to ten years...
if ever.
5. Investment Demand
According to the World Gold Council, demand
for gold in 2005 hit a record of $53.6 billion with a
26% rise in investment demand in tonnage terms in
2005. The major focus on the WGC’s year-end
investment demand report is on the total rise in demand,
the emphasis on new demand entering gold markets
around the globe, growth in investment demand
specifically from India and China, as well as the
endorsement that Central Banks are "looking at gold"
for diversification purposes.
