Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Friday, January 26, 2007

Gold – Ready for the Next Leg Up?

Last year, we saw gold soar to $732 per ounce before pulling back. There is a lot telling me that gold prices now are an incredible bargain…
Production is falling. Despite soaring prices, gold mine production in 2006 fell by 2% to 2,467 metric tonnes, according to GFMS. South Africa, Australia and the United States all saw production go down – even though prices are going up!

Official sales are tumbling. Selling of gold by central banks dropped by half in 2006 to 330 metric tones. Market watchers expect those sales to keep falling.

Next wave of gold ETFs. The US-based gold ETFs are a powerful force driving the market. Recently, thre companies rush to launch gold ETFs or funds in India as the laws changed favorably in that country. So a billion people will suddenly have access to gold funds. Sounds bullish to me!

Producers are de-hedging like crazy. “Hedging” is when miners sell forward gold production to lock in prices. With gold prices strong and getting stronger, miners are buying back those forward sales. Net producer de-hedging in 2006 hit 400 metric tones – FOUR TIMES the volume of 2005.

If anyone knows where the price of gold is going, it should be gold miners. And they’re giving a big vote for “UP!” Gold should charge back to $732 this year on its way to $750 per ounce.


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