By Kishori Krishnan Exclusive to Gold Investing News
It might be the best buy signal you’ll ever see for the gold-mining sector. Since October, demand for gold coins and bars has soared so much that dealers can hardly find any to sell right now. If they can find it, the premium can run as high as 60 per cent to 100 per cent over the published spot price of gold.
Demand for physical gold has been incredibly strong in the last quarter as prices fell during the credit crisis squeeze.
Gold, like most assets, was sold during the deleveraging when selling was rampant. At the same time, buyers came in from around the world as a heavy run on gold caused a supply shortage. The World Gold Council said the demand for gold reached a record in the Q3, as the race to secure physical gold reached an intensity never seen before. Even as other investments have been battered, gold has performed well in the downturn.
Some analysts predict it could be a standout investment this year because of major concerns about the stability of the US dollar and the rebound in oilÂ prices, which could be enough to lure investors back into the resource-heavy index. Shortness of supply could also help push up the price.
Most central banks hold gold in their reserves. According to Mark Pervan, head of commodity research at the ANZ, central banks are hoarding it. “There is 33,000 tonnes sitting in central banks, which is the equivalent of 10 years’ supply of gold,” he said. Pervan was of the opinion that central banks were holding gold because of fear about the way the US is using the printing press to refloat its economy. “We haven’t seen how all the cash they are printing will play out yet,” he said. “They’re giving it to banks and the banks aren’t doing anything with it, but the moment the banks start pushing that money back into the economy, inflation will come back and gold will surge.”
His view is shared by American finance guru Peter Schiff - one of the few economists to predict the credit crisis. “Policy makers don’t want their currencies to rise against the dollar - particularly the Euro and the Yen,” he said. “They have to put their money somewhere, so they are buying gold.”
Gold Mining Stocks
There’s bound to be a rebound for gold-mining stocks too. Gold stocks enjoyed strong sessions last week as Toronto’s main index finished higher for the seventh time in eight sessions. In the Canadian stock markets, gold miners were the main bright spots as gold prices rose and two miners announced production increases. The materials group, which includes gold miners, was the sole advancer, up 1.1 per cent.
Six gold companies were the top movers of the overall index.
Goldcorp (TSX: G) rose 2.5 per cent to C$33.83 as the company said it has matched its 2008 gold production forecast and plans for a 50-per cent jump in output over the next five years.
Kinross Gold (TSX: K) said it plans to spend $460 million this year boosting production by 32 per cent to as much as 2.5 million ounces.
Kinross rose 3.7 per cent to C$21.02. The firm’s fourth-quarter output was up 8.3 per cent to a record, as a mine in Mexico approaches full production.
Eldorado (TSX: ELD) jumped 10 per cent, while Pan American (TSX: PAA) added 8.25 per cent. Agnico-Eagle Mines (TSX: AEM) gained 6.1 per cent.
Gold miners had a brutal year in 2008, but the swelling demand for gold is doing wonders for their profit margins. Given that most markets fell sharply in 2008 as the financial crisis intensified, gold shares were especially hard hit as gold and the stock market both declined, increasing the downward pressure on these stocks. Analysts maintain that currently, all of these markets are bombed out and extremely oversold. This means that stocks and gold are poised to move higher, and gold stocks will indeed benefit on both counts.