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Gold Supply Crunch


 While much of the rage over the gold price for the past five years has been attributed to the decline of the U.S. dollar and the massive inflation created by the Federal Reserve through quantitative easing, Standard Chartered,a Chinese rating firm, argues that an alternative factor will propel Gold prices to $ 5,000 per ounce. CNBC reports that the Chinese rating firm argues that a “supply crunch” will propel the gold market to $5,000 levels in the future (http://www.cnbc.com/id/43396080). According to the report, Standard Chartered argues that “there are very few large gold mines set to commence operation in the next five years.” Furthermore,  they claim that “the limited new supply comes at a time when central banks have turned from being net sellers to significant net buyers of gold.” Taking in these assumptions  the firm argues that their will inevitably be deficit in the gold market–even assuming flat growth in demand for gold.  The article hits to the fact that current conditions in the financial lending markets coupled with the high price/risk/reward model of gold mining exploration companies, has stunted the formation of many new mining exploration companies. Given the performance of gold over the past couple of months (looking at the fact that the metal is trading only 5% of its all-time high around the $1500 level), it looks as if Standard Chartered may be spot on with their assessment.

Flipping to the other side of the prescious metal coin and taking a look at silver, it seems that the metal is hovering around it’s short term support level of $33-34. Some financial analystargues that one factor affecting the price of silver is that major financial firms have been shifting some of the silver holdings into gold. Another factor that may be affecting silver’s ability to recover to its previous highs is the recognition of the metal as an industrial metal. Whatever may be affecting the price of silver, I still believe that  the metal will trade much higher in the future. Untill then, we will just have to wait and see.

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