Gold investors know all too well the psychological importance of $1,000 gold. The yellow metal’s been hovering frustratingly near that level for weeks after briefly surpassing it in February. According to John Kaiser, editor of the Kaiser Bottom-Fishing Report, “we’re getting very close.” In this exclusive interview with The Gold Report, John shares his “modest” price forecast of $1,300 – $1,400 within the next six months and presents strategies for gold companies looking to create value.
The Gold Report: You have said that you believe gold may go up to $1,300 to $1,400, but probably not higher. Can you give our readers an overview of how you achieved those targets?
John Kaiser: I think we’re ready for a real increase in the price of gold, which is why I am looking at more modest targets, such as $1,300 to $1,400, happening fairly quickly, probably bouncing plus or minus $200 or $300, around that level, but it’s a real price increase without a corresponding catastrophic collapse in the U.S. dollar or hyperinflation descending upon us.
TGR: What time frame are you looking at?
JK: I think we’re getting very close. We’re knocking on the door of $1,000, which is a very important psychological level. I would say in the next six months, as people realize that the banking system is still troubled and will be for a long time because an uptrend in real estate prices is not in the cards for a very long time. And, in order to make the banks solvent, the underlying collateral needs to have liquidity and a stable price.
I’m saying that in the next six months the realization will kick in that the world has changed in a significant way and the United States is losing its role as the overwhelming economic superpower and will continue to do so over the next 20 years as other countries such as China and India come into their own and pick up the slack that’s created by the collapse of consumption right now. If it breaches $1,000, I think it’ll very quickly go to $1,300-$1,500 and establish that as a new base.
What I’m arguing is that the uncertainty about the next 20 years is going to encourage more and more people to put part of their wealth into gold and keep it there. This expansion of investment demand differs from the situation we had in 1980. Back then we had a tenfold increase in the real price of gold from 1972 to 1980 and part of that was because gold’s value had been artificially suppressed through the gold standard and once that was removed, we had a slingshot reaction and gold adjusted to a price ten times higher.
There were mines being shut down in the ’60s because their costs kept rising while the gold price remained fixed. Then all of a sudden we had new technology in the form of heap leaching and new economies of scale that unleashed an enormous amount of new gold supply. During 1980 the new mine supply of gold was 42 million ounces, which was actually lower than the 48 million produced in 1970. It rose steadily after that, peaking at 82 million ounces in 1999 when gold was also under pressure from official selling by central banks and indirect selling through the gold carry trade made possible by gold leasing. From 1980 through last year gold producers added 1.9 billion ounces to the above ground stock, bringing it to about 5 billion ounces today. But mining costs have kept going up and up and the annual mine supply has been declining since 2004.
