A continued global economic tsunami and the increasingly urgent scramble for an investment lifeline will combine to power gold prices ominously higher and into uncharted territory later this year. This is the consensus of opinion among the CEO's of a dozen emerging to mid-tier gold mining companies who were recently interviewed by BNW Business Newswire.
Gold will be trading in the $1,100 to $1,500 range by year's end, they all agreed.
However, several of these captains of industry forewarned of a cyclical summer slump to as low as $750 an ounce. Among them is David Hall, CEO of Aurizon Mines Ltd. (TSX: ARZ) (NYSE Alternext: AZK), who suggests that gold's normal cyclical pullback during summer months will probably be repeated this year. The likely continuation of a worldwide deflationary environment over the next several months will also contribute to keeping gold prices in check, Hall adds.
What nearly all of these pragmatic business leaders did agree upon was that the nearly $800 billion U.S. economic stimulus package will spark the onset of hyper inflation as early as this fall. And that will swiftly and unequivocally establish the $1,000 mark as gold's next key support level, they say.
The one dissenting voice is Neil McMillan, CEO of Claude Resources Inc. (TSX: CRJ) (NYSE Alternext: CGR), who doesn't believe that gold's popularity is set to soar, along with consumer prices. Instead, he suggests that the implosion of debt in the system will continue to exert deflationary pressure on the economy well into 2010.
Gold is the ultimate form of money that people trust the most. So, its current appeal is that it represents a flight to safety for investors, he adds. I think gold will still end up in the $1,200 to $1,500 range by year's end. But it's a fallacy that you need inflation for gold prices to perform well.
However, gold's future is not tied exclusively to the health of the economy. Another key value driver for gold prices is the continuation of a supply/demand imbalance, according to Bob Gallagher, CEO of New Gold Inc. (TSX: NGD) (NYSE Alternext: NGD). And his newly beefed-up company is moving aggressively to capitalize on the investment world's glowing appetite for physical gold.
Year-on-year gold production is decreasing globally. As gold mines age and get depleted, gold reserves are not being replaced. This situation is happening at a much greater rate than new ore bodies are being discovered and put into production, he adds.
This scenario is a key reason why New Gold announced a $280 million merger with Western Goldfields Inc. earlier this month. Gallagher explains that the added cash flow from Western's Mesquite gold mine will underwrite the cost of putting New Gold's New Afton deposit in British Columbia into production. This should add a further 85,000 ounces of gold to New Gold's expanding annual output. In the short term, the combined annual yield from the merger's three existing mines is projected to be around 335,000 ounces in 2009.
Gallagher is gambling that there won't be any significant retreat in gold prices this summer. He reasons that the unprecedented order of magnitude of the global economic crisis will continue to deflate stock prices this summer. He therefore doesn't foresee any serious slackening in demand for gold, which offers a last vestige of hope for an otherwise gloomy investment public.
Market sentiment suggests that other assets and other commodities aren't going to perform anywhere near as well as gold. That's why mints are struggling to keep up with the investment demand for gold, he adds. So we'll see gold continue to gain momentum and stay above $1,000 by the year's end.
Others CEO's also share his optimism for bullion prices, especially since gold and silver are the only hard assets that haven't been seriously debased by a global deflationary vortex.
They include Aurizon's David Hall, who says that sophisticated investors are not only hoarding gold bullion; they are also increasingly betting big on emerging to mid-tier gold mining stocks. The attraction, he declares, is that gold producers represent a flight to quality in the form of low balance sheet risk and leveraged exposure to a rising tide market for the noble metal.
Heightened investment demand will help gold achieve an all-time high of $1,500 an ounce in 2010, he adds. Hall reasons that this will constitute the next psychologically important price threshold for the growing ranks of gold bugs who believe that the recession will continue to be painful and protracted.
Another key lever for gold prices is a likely end to the U.S. dollar's strong rally of the past few months, according to Dale Ginn, CEO of one of North America's fastest growing and lowest cost gold producers, San Gold Corporation (TSX.V: SGR).
I think the U.S. dollar will weaken in response to America's huge debt load and as a result of the Chinese and other major investors diversifying into other assets other than the greenback. Assets like oil and gold, and maybe even the Euro. All of this should help to push gold prices higher, he adds.
But if the U.S. dollar continues to strengthen in relation to the Canadian dollar, then San Gold gets more Canadian dollars for each ounce of gold that we sell. So we win either way.
Indeed, Ginn believes that there are especially powerful dynamics converging to create a very bullish upside for gold in the coming months with the prospect of a $1,500 an ounce milestone being reached even before the year's end.