The end of the gold bull run may be two to three years away, Paul Walker, CEO of precious metals consultancy GFMS.Presenting his outlook for gold at the Mining Indaba, Walker said by this time, gold supply would exceed demand.
“Our view is there is still a lot of upside for gold going forward,” said Walker, but he cautioned that the end of the bull cycle might be in sight. “Downside risk to the gold price is seen in the next 12 to 36 months,” said Walker.
He said in the interim the gold price would continue to be supported by a cocktail comprising a weaker dollar, global economic uncertainty and declining gold output.
Gold added 31% in 2007 and has continued its run in 2008, but the shift in the declining gold supply to over-supply on the back of new mine production coming through in the next few years could alter this picture.
“One thing is for sure, the rising gold price is not purely a function of the declining US dollar. The dollar is an important influence on gold, but gold does dance to its own tune,” said Walker.
The key driver of gold is economic uncertainty, and worries over the US heading for recession is driving gold investment. Effectively, investors are making a call on what they think will happen with US Inc, and the weakness in the US greenback reflects an underlying fear of what is going on in the US economy, he said.
“We are, in my opinion, in the middle of a genuine bull rally for gold,” said Walker.
“Our opinion is that the US will go into recession and there will be knock-on effects,” he added.
If there is a recession in the US, the investment price for gold will be stronger and there will eventually be a decoupling of gold from the rest of the commodities complex. (I-Net Bridge)