Coming tidal wave of gold demand
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Posted: May 31, 2002
1:00 a.m. Eastern
Editor's note: The following is a guest commentary from one of WND's sponsors, Kevin DeMeritt, president of Lear Financial. If you would like to learn more about investing in precious metals, take advantage of the free information Lear Financial is making available to WND readers.
By Kevin DeMeritt
© 2002 WorldNetDaily.com
It's a scenario that's taken time to unfold but is now becoming crystal clear.
At its center are gold and the dollar. The scenario is this: The dollar, the once mighty symbol of American might and global dominance, is no longer perceived internationally as being bulletproof – due largely to America's continuing role as the world's leading debtor nation – and, as a result, dollar-holders are beginning to quietly exchange their positions for gold.
It really is a case of the dollar being at the wrong place at the wrong time. The fact is, our troubled world has never been in greater need of a "bulletproof" currency. With emergency flares shooting up over the planet's No. 2 economy, Japan, with America battling hard at a seemingly everlasting war, with Israel tied in a bloody Gordian knot, and with Latin American nations crying, "Uncle!" the absolute last thing the world needs is a currency that's stumbling. But that's exactly what it's getting in the dollar.
And that is precisely why gold has shot past the $318 mark.
A green light for Canadian retirement funds
And it's not going to stop there, either. Canadians, for the first time ever, can invest their registered retirement savings plan (RRSP) assets directly into physical precious metals. A new gold fund that invests entirely in physical gold (not gold mining companies, futures or options) now enables everyone in Canada to invest in the actual metal itself. This is huge!
Prior to now, Canadians could only invest indirectly through funds that were either exclusively or predominantly invested in gold mining companies. But the Millennium Bullion Fund is only interested in investing in precious metals – so much so that it forms a brand new RRSP asset class.
We're talking about $400 billion of total Canadian RRSP funds here. And that's big. Let's say that just 10 percent of this $400 billion goes gold's way. That would buy 30 million ounces of gold, or, in other words, more than a third of gold's annual global production (irrespective of current demand).
Now consider Japan's position. That government recently cut back on depositor insurance, a direct reflection of the health of that country's banking industry. If just 10 percent of those anxious Japanese depositors turned around and invested the newly uninsured portion of their savings to buy gold, that would amount to half of all the gold held by the world's central banks.
These two enormous "10 percent" moves haven't happened as of yet. But it could be just a matter of time. All it will likely take is an increasing – or just a continuing – deterioration of the value of the dollar or the state of the Japanese economy, to name just two of the world's hairline triggers, for the current gold bull market to expand to stampede status. And that's just the picture on the demand side.
Production that's already years behind
The picture on the supply side, were demand to suddenly jack up, is simple: There'd be no keeping up. As it is now, there's 126 million ounces of demand but only 82 million ounces of gold produced each year to feed it. And this is not a real fluid situation, either. The mining companies can't simply press a button to jumpstart production.
For years, due to an artificially low price of gold, there's been a contraction in exploration and new gold mine development. Most mines are geared only to make nominal profits and get by. Significant production from new mines wouldn't realistically take hold for another five, maybe 10 years. So a sudden monster gold move would be compounded by unusually feeble production. Climbing gold prices would then be a lot like the driver of a speeding car … that hits a concrete wall.
Most investments are haunted by nagging questions. Gold no longer is. Not only are the fundamentals solidly in place, not only does demand already exceed supply by some 40 million ounces, and not only is there a 14 percent profit potential virtually built in and a Dow/gold ratio that's still way overbalanced at 27 to 1 (in 1980, that ratio was "normal" at 1 to 1), but with peaking world tensions, rising oil prices and a weakening dollar, do you really feel comfortable not maintaining a 20 to 30 percent gold position in your portfolio? Better think about it.
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