Conference season is heating up fast as fall arrives for the gold industry, bringing the typical raft of forecasts, predictions, outrageous price targets and deep, if less ball-breaking, analysis.
What might the World Gold Conference in South Africa say about the former world No.1's collapsing output, down by one-half in 10 years? Will the China Gold Summit spot that private households are putting twice as much of their ever-growing savings into gold as a decade ago? Will the London Bullion Market Association even bother to note the idiot claims about "Hong Kong pulling all its physical gold holdings from depositories in London" (yes, both tonnes of it...Gasp!) at this November's Edinburgh conference...?
On one side of the trade, meantime – and ahead of the big US, Canadian and Australian mining conferences this autumn – gold season kicked off quietly in Vicenza, Italy last weekend. Attendance is up at the "Choice" jewelry exhibition, apparently, but it will need to be. Global gold jewelry demand has sunk as prices hit record highs in all currencies over the last 12 months – up by one-third on average, in fact, against the world's top 12 currencies by issuing economy.
To date, the Italian jewelry industry – world No.2 behind India – could only spy "some weak signals of recovery in foreign demand," according to Dino Menarin, president of the Vicenza Fair on Sunday.
For mining analysts and bosses, in contrast, "We are now into the ninth year of the current bull market in gold," noted head of the CPM commodities research group Jeffrey Christian speaking at the annual Gold Forum in Denver, Colorado on Monday.
"We have had more investors buying more gold for a longer period of time than ever before. They probably will continue to buy even if the economy stabilizes" – but investors will need to keep buying gold according to CPM's competitor GFMS. Current prices need investors to buy 60-70% of world mine production reckons Paul Walker of the London-based analysts – also speaking in Denver – thanks to the global drop in jewelry and industrial demand.
"Is that sustainable indefinitely?" Walker asked. "I don't know."
"I think the downside in gold is limited to 5-10%," said GFMS chairman Philip Klapwijk in Q&A following his presentation. "Whereas we could see other commodities dropping perhaps 30% on a setback."
Noting the huge jump in gold derivatives bets of the last 3 weeks, "Speculators are rebuilding their positions" after the dramatic halving of open interest in 2008. "That's not to say we can't see a correction from current 'frothy' levels...but [that would] set us up for renewed gains to new record prices."
Looking at scrap-metal supply – spurred by record-high prices across India and south-east Asia, as well as new gold buying operations such as Cash4Gold in the West – the "supply shock" of early 2009 has not yet returned despite higher Dollar gold prices, Klapwijk reported, while central banks are now "net purchasers" after acting as "heavy, price-insensitive sellers" every year since 1989.
Jeffrey Christian of CPM Group told the Denver Gold Forum on Monday that central-bank demand will now equal 185-310 tonnes of gold per year – and "that is an extremely conservative projection."
But "we must be aware that the bull market will not last forever," Klapwijk said in concluding Monday's GFMS presentation here in London, highlighting "two warning shots" in the consultancy's long-term global analysis.
First, annual net demand – meaning all gold-product fabrication minus old-scrap supply – has been lagging annual mining output since 2001, creating a surplus this year of some 1,500 tonnes.
Second, and after annual jewelry fabrication first turned lower in 1997, the volume of physical gold investment is now close to overtaking it.
For the time being, however, GFMS believes sheer "weight of money" makes a strong "case for gold", firstly because global allocations as a proportion of portfolios remain low (as BullionVault argues here and here); real interest rates after accounting for inflation are low to negative, making the on-going costs of gold storage less onerous; and fears over inflation and the fate of the US Dollar "will only grow" over the coming six months or more.
"Anybody that's long a lot of US Dollars – CHINA being one, maybe the Middle East – they're going to go: 'This thing is going downhill fast'," forecast gold mining entrepreneur Rob McEwen, former chief of GoldCorp and current CEO of both US Gold and Minera Andes Inc., at the Denver Gold Forum yesterday.
"[They're going to think] 'We have to get out of it and we're going to buy assets'."
Ending his presentation with a lottery to win a mock $1 trillion bill, reports Dorothy Kirsch at MineWeb, McEwen named a gold price of $5,000 an ounce by 2015.
That's certainly one way to stand out from the crush at this year's gold conferences!