Profit Confidential Says Demand for Gold Amidst Contracting Supply Points to Higher Prices

Profit Confidential addresses the current demand for gold and how it indicated higher 2015 prices.

Profit Confidential (www.ProfitConfidential.com), an e-letter of Lombardi Publishing Corporation, a 29-year-old consumer publisher that has served over one million customers in 141 countries, is explaining how strong demand for gold amidst contracting supply points to higher prices in 2015.

“Just as the stock market moving higher on historically high valuations is mind-boggling, suppressed gold prices don’t make much sense either,” says economist and lead contributor Michael Lombardi. “Demand for gold is increasing, while supply is contracting—a perfect recipe for higher gold prices. But despite the basic demand/supply equation, gold prices remain flat. Eventually, fundamentals will come into play, and that will translate into higher prices.”

According to the World Gold Council (WGC), global demand from central banks and investors remains strong. In 2014, central banks purchased 477 tonnes of gold, 17% more than they did in 2013. This marks the fifth consecutive year in which central banks have been net importers of gold bullion. (Source: Grubb, M., “Gold Demand Trends Full Year 2014,” World Gold Council web site, February 12, 2015; www.gold.org/supply-and-demand/gold-demand-trends.)

Lombardi explains that demand for jewelry makes up roughly half of global demand for gold; of that, approximately 56% comes from India and China. In 2014, jewelry demand from India was 662 tonnes, an eight-percent increase over 2013 and the highest level since India began tracking purchases in 1995. For the majority of 2014, the Indian government imposed restrictions on gold imports. With restrictions eased in 2015, it is likely that gold demand for jewelry will hit another record.

On the supply side of the equation, during the first 11 months of 2014, U.S. gold mines produced just 193 tonnes of gold, about eight percent less than the 209.7 tonnes they produced in 2013. Lower gold prices have forced gold producers to cut back on exploration costs, stunting future gold production; this has carried over into 2015. (Source: “Minerals Industry Surveys,” U.S. Geological Survey web site, February 2015; http://minerals.usgs.gov/minerals/pubs/commodity/gold/mis-201411-gold.pdf.)

“The decline in gold prices since 2011 has discouraged some, but I see it as an opportunity. Four years ago, gold prices peaked, but a lot has changed since then; for one, lower gold prices have reduced supply as capital and exploration spending in the mining industry took a massive hit,” Lombardi concludes. “At this point, would-be investors need to look for gold-producing companies that have become leaner, reduced their production costs, and increased their grades.”

For more information on Profit Confidential, visit www.ProfitConfidential.com.

Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.lombardipublishing.com.

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Release ID: 76532