And it’s time you did too
Gold miners have always been bullish on gold, but now they’ve put their money where their mouth is...
Despite the fact that the gold price has slipped to around $918, they still expect it to rise further in the years ahead.
Société Générale said today that the global gold miner hedge book had shrunk to its lowest level in 16 years.
Why is this significant?
Because it shows they are eliminating their insurance against a falling gold price. It’s what those in the City call ‘de-hedging’, i.e. they don’t think the price is going to fall.
The hedge book now stands at just 835 tonnes, which is the lowest level since 1992, and is equivalent to 34% of 2007 production levels. De-hedging in the fourth quarter was 72 tonnes. For the whole of 2007, de-hedging came in at a record 446 tonnes.
This means that most miners are NOT hedging their positions to protect against price falls.
It’s a bold move. And it proves to me how confident they are that the value of the yellow metal will go higher in the years to come.
De-hedging is now slowing down and the trend is not being reversed. This is a very bullish sign for my favourite metal.
The fundamental case for gold is clear...
According to the World Gold Council (WGC) demand hit a staggering record of $79 billion in 2007. At the same time production of the metal actually FELL 10%.
The value of gold jewellery sales rose 14%, even though the volume of gold in shops DROPPED 16%. That means more people are paying MORE for it.
And I can only see demand exploding from here on in...
You see, for the first time since 1949 Chinese citizens can now legally buy gold. When the same ban was lifted in America in 1973 the gold price doubled because of the extra anticipated demand. Back then the US population was 212 million. Today’s China tops 1.5 BILLION.
And they’ve already beaten the US in the gold buying stakes!
The WGC reports that China has now overtaken the US as the second largest volume retail market for gold jewellery after India, with demand for jewellery reaching 302 tonnes.
Other countries are hot on their heels too... in 2007 Turkey and the UAE broke records in overall demand and strong growth continues in Russia with jewellery demand rising 11% to set a further annual record.
MoneyWeek analyst Tim Price says opinion in the City is unanimous:
“With these economic fundamentals, even a tiny increase in investor interest in the precious yellow metal could produce a MASSIVE run-up in the price.”
How to position your investments to profit from gold
The fact remains... demand is higher than ever. It’s likely to continue. And in times of crisis and global economic uncertainty it’s widely thought that there’s nowhere safer for your money than gold.
Fact. It has real intrinsic value.
Gold miners believe so. So do I. And I’ve found a great way you could profit from this trend in the years to come.
It’s cheap, it’s easy to trade and it’s backed by real gold stored right here in London. For details about my service, Smart Commodities UK, have a look here.
Regards
Garry White
Editor Smart Commodities UK
