Precious metals and coin dealers Blanchard and Company expect five fundamental factors will keep the gold price high and rising throughout the year.
Since hitting record highs above $900 since the first of the year, gold had shown continued strength at those price levels amid expected volatility, and analysts at Blanchard and Company Inc. say five specific fundamentals will continue to drive the price up through the end of 2008.
- supply and demand,
- dollar weakness,
- institutional buying,
- the price relationship between gold and oil,
- global economic uncertainty
“Gold has experienced a shift in fundamentals when compared to 1980’s speculative highs, and today there are five factors that will drive prices higher – supply and demand, dollar weakness, institutional buying, the price relationship between gold and oil, and global economic uncertainty,” says Donald W. Doyle, Jr. Chairman and CEO of Blanchard. “Expect some price consolidations, which are healthy for the market, and view them as buying opportunities because we see the price ultimately going significantly higher than current levels in the long-term.”
Doyle says investor demand is at record levels, and the markets should expect to see that demand continue as global supply shrinks, emerging markets begin to play a more significant role in the world’s economy, and as former sellers of gold – notably central banks and hedge books – reverse their selling trends and become buyers again themselves.
“The U.S. economy is slowing to a crawl, and the Fed is continuing to infuse liquidity through rate cuts that further weaken the dollar,” Doyle says. “Look for large institutions and central banks to continue to move out of dollar-based assets and into quality alternative tangible assets such as gold.”
Doyle also pointed to differences between today’s economic collapse and that of 1987, noting that the previous near global implosion featured a U.S. economy that was in solid shape. Now the underlying cause of the crisis is the domestic economy and housing deflation. Real consumer spending is declining, payroll employment numbers are falling, and industrial production in the U.S. is losing traction, triggering a flight to quality alternative investments.
“Gold is not just a luxury item – it was the foundation of the global currency system for eons and, as the current global economic crisis continues to unwind, the precious metal has reasserted itself as the fourth currency,” Doyle says. “We believe widespread increased investment demand will offset any decline in luxury goods manufactured with gold as investors seek to secure assets that will retain their value.”
David Beahm is Vice President Marketing and Economic Research, Blanchard and Company