Gold has passed the $500-per-ounce mark in some style, says Dailyreckoning.co.uk. But don't think that its bull run is now going to take a breather, because it isn't.
As DRDGold chief executive officer Mark Wellesley-Wood points out in his firm's latest newsletter, "Global gold production is set to decline dramatically", which will "generate a scramble for gold ounces" that will just keep pushing prices up. In the third quarter of 2005, gold demand rose 7% in volume terms and 18% in dollar terms.
The gold bears may think rising prices will create rising supply and hence a self-correcting situation, but, says Wellesley-Wood, they are wrong. "Expenditure on exploration peaked in gold mining in 1997, and has been pretty flat since then." There are currently 29 new gold mines in the pipeline, but even if all these are developed, they won't make up the deficit between them.
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Worse (for the bears), "the reality is that not all these 29 mines will get the go-ahead as cost inflation, especially capital-cost inflation for resources projects, has increased by a great deal more than the gold price". In 2004, the supply of gold actually fell by the most in 39 years.
So what should investors be buying? You can't go wrong with physical gold, says the Daily Reckoning, but gold shares look more and more interesting too. As the supply crunch continues, expect to see "merger and acquisition activity and industry consolidation continue apace", says Wellesley-Wood. "If you can't find it, buy it."
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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