Gold Outlook

November, 2009

The gold price continues to climb. About $CDN 930 in 2008 and about $1080 thus far in 2009. Notwithstanding the trend, opinion remains divided on the future with some arguing that a “pullback” is inevitable and others saying that we are on the threshold of a major appreciation.

Recently, relatively high prices have brought some scrap gold to the market but we believe mine supply of gold, which peaked in 2001, will continue to trend down most years for the foreseeable future. More than other minerals, gold mining is in trouble. All the big open pits, which have driven supply for decades, are depleting and there are fewer big new on the horizon. It has been a long time since the industry replaced its reserves; serious exploration (as contrasted to serious promotion) is well down and likely to remain so. Geological targets have become fewer and political risks have become more widespread.

Central bank selling of gold is diminishing and Central bank buying, notably on the part of China, is increasing. The idea of “demonetizing gold,” which has been advanced aggressively in order to enhance the image of the dollar, is finally losing traction. The fate of those short hundreds of millions of ounces in expectation of demonetization remains to be seen; meanwhile the gold price appears set to continue its ascent.