As tensions heat up in Europe and Asia some analyst are predicting that the price of gold may be ready to enter a surge that could take the metal to the $2,000 an ounce mark.
According to commodities analyst Gary Wagner gold may be headed for a two perhaps four year long “super cycle” that could push the price of the precious metal even beyond the highs of $1,900 an ounce last seen three years ago.
Wagner has been a technical market analyst for over 25 years. A frequent contributor to STOCKS & COMMODITIES Magazine, he has also written for many financial publications including Futures Magazine as well as Barron’s.
According to his commentary “Chart This” on the Kitco Precious metals website, Wagner said that even before the current crisis in the Ukraine gold had already bottomed out of it year long spiral that devastated the Nevada mining industry in 2013.
Trading then at around $1,100 an ounce hundreds of workers were laid off by area mines which instituted other cost cutting measures as well.
Some locals feared a return to the bad old days of the late 1990’s and early 2000’s when the market crashed to well below $400 an ounce triggering a local recession that devastated the economy.
At the turn of the millennium hundreds if not thousands of jobs were lost and rural Nevada was plunged into deep recession because of the gold death spiral. Experts were predicting that gold would never again seen the $700 an ounce mark of the late 1970’s, and the odds were long against the precious metal would reach again the $450 sweet spot that made gold ming profitable for Nevada mines.
Those fears are in vain Wagner predicted and added that the signs are that gold is not only ready to return to record levels it may even eclipse them.
Even before the crisis in the Crimea gold had already returned to the $1,300 an ounce mark indicating that the market had recovered and that the sell off had stopped.
And now with the current political crisis the precious metal should recover its former highs and perhaps exude them Wagner said.
There are several reasons to be optimistic he explained first gold is regaining its luster as a safe haven for investors that was tarnished a year ago by the unexpected drop.
More practically is that gold knows no border. Should the Ukrainian crisis continue without resolution the West is sure to impose more economic sanctions and restrictions on trade with Russia. A sure way to sidestep those trade restrictions is instead of using dollars, euros or other currency is to make them in gold.
Even if such trading is illegal it is a lot easier to hide the source of gold than it is to track hard currency as the Iranians proved in the last few years as they circumvented their own sanctions from the West.
In addition to political unrest in Europe there is also an economic crisis brewing in China. A few weeks ago the first corporate bond default occurred in China. China’s financial system has been suspect for quite some time. If the Chinese financial system gets shaky, it would likely be a mixed bag for gold. It could limit consumer demand from the largest gold consumer in the world—China. However, it could also prompt safe-haven demand for gold worldwide.
That demand could also see an upswing this year from the other east Asian economic powerhouse of India which is expected to loosen its restriction on gold trading this year.
All that bad news is good news for the Nevada mining industry and the Nevada economy. Both for current projects such in the Carlin Trend and new ones such as Long Canyon Mine.
Even before the slide in the price of gold ended, Newmont Mine official insisted of that work on the Long Canyon Mine project 30 miles west of Wendover would continue unabated.
“Of course we have had to adjust and reevaluate,” said Newmont Mining executive Mary Korpi. “Some projects have been put on the back burner but the Long Canyon project is not one of them.”
Newmont commitment to the project will probably not dissipate no matter what this year since it is still in the permitting/exploration phase and with the earliest construction start date estimated for mid 2015 any fluctuation in the price of gold this year is essentially irrelevant for the Long Canyon project.
That is not to say that could change. The price of gold could fall dramatically or on the other hand it could just as easily rise.
“Unlike other industries gold mining really has no impact on the price of gold,” Korpi added.
Everything else does. From agricultural production to industrial output the gold is perhaps the one commodity that is influenced by the great and the small, except when it is not.
When the metal fell in the late 1990’s it was considered a permanent market correction a result of the peace dividend and the fall of the communist system.
Instead of dealing in the precious metal trade between east and west would be based on dollars or credit cards rather than bars of gold.
That thinking was true until suddenly it wasn’t anymore. The price began to increase coincidentally with the wars in Afghanistan and Iraq and also with surge of the Chinese and Indian economies.
Gold traditionally rise with political and economic uncertainties however with now almost the entire world connected instantly it is incredibly difficult to predict just what event or events will either spur or shrink demand.
