Gold Is Looking Better as Time Goes On
When I say that the fundamentals for gold are improving, I’m talking about the basic demand and supply of the metal, which ultimately determine the gold prices.
On the demand side, in India, which competes with China as the world’s biggest importer of gold, we’ve seen demand for gold soaring for months now.
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In June 2016, $1.2 billion worth of gold was imported into India. In June of this year, this number rose to almost $2.5 billion, which is a year-over-year increase of more than 100%. (Source: “Quick Estimates For Selected Major Commodities For June 2017,” India Ministry of Commerce and Industry, last accessed July 25, 2017.)
And the June spike in gold imports into India is not an anomaly. We saw triple-digit year-over-year increases in the dollar value of gold being imported into India in February, March, April, and May of this year.
On the supply side of the gold equation, I would go as far as to say that the situation is dire, because the supply is not keeping up with the increased demand for gold.
At Lombardi Letter, we pay attention to gold production at major gold-producing companies. As it stands, we are predicting that gold production from the majors will be lower this year, compared to last year. This shouldn’t be surprising, because depressed gold prices reduce gold production as companies close down production at high-cost mines.
Barrick Gold Corp (NYSE:ABX) is expected to produce 5.3 million to 5.6 million ounces of gold in 2017, which is on par with the 5.5 million ounces of gold produced in 2016. (Sources: “Barrick Reports First Quarter 2017 Results,” Barrick Gold Corp, April 24, 2017, and “Barrick Reports 2016 Full Year and Fourth Quarter Results,” Barrick Gold Corp, February 15, 2017.)
Goldcorp Inc. (NYSE:GG) is expected to produce 2.5 million ounces of gold in 2017, which is down from almost 2.9 million ounces of gold produced in 2016. (Sources: “Goldcorp Reports First Quarter 2017 Results,” Goldcorp Inc., April 26, 2017, and “Goldcorp Reports Fourth Quarter and Full Year 2016 Results,” Goldcorp Inc., February 15, 2017.)
All the stars are lining up perfectly for a super spike in gold prices. Patient investors could reap big rewards with gold. Don’t rule out gold prices at $2,500 an ounce in the next few years. That’s why I continue to believe that the depressed stock prices of quality senior and junior mining companies are a bargain today.
