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« Gold: Update 23 July 2006 | Main | Golden Star Mining »

Gold: to fall with base metals?

If there is a sell off in base metals will gold get dragged down with it?

In a recent article entitled ‘Trouble Brewing’ by Paul van Eeden on the Kitco website, Paul warned of the dangers that could lie ahead for gold should the base metals suffer a fall. Also in an interview on ROBtv the same scenario was outlined. As an aside I do enjoy Paul’s commentary and he is a very well respected commentator in the investment world.

In these commentaries Paul tabled the idea that
the end of the real estate boom coupled with a generally slower economic growth rate will cause demand for base metals to drop. I would have agreed with this hypothesis a few years ago when the United States was the worlds economic power house and the largest consumer of just about everything. However, I don’t believe that is the case today. When we look outside of the North American market what do we see? We see China and India deeply immersed in an expansion programme the size of which the world has never seen before.

If we look at the pie chart below we can see the populations of China and India dwarf the population of America.


China recently published its GDP as being in the order of 11.3%, its fastest pace in a decade according to The Daily Telegraph, which is massive growth and they have 1.3 billion people. This figure has been taken at face value but there are those who would argue that China has been known to be economical with the truth when reporting such matters.

The Chinese and Indian people, like any other modernising nations can see and now want all the goodies and they are striving desperately hard to obtain them.

One of my colleagues has just returned from a tour of China and he just could not believe the pace of development that is happening and does not look like slowing down in the near future. China has 15000 road projects on the go, followed by houses and cars, you name it, they want it!

On this website we are primarily gold bugs, however, we can not see a fall off in demand for base metals for some time yet. Sure, it will be volatile for both base and precious metals but the world is hungry for both and they will be consumed in great volumes.

This article is an attempt to add a different view to the current debate on the state of the market. So we will conclude by sticking our necks on the line. Gold prices will be north of $1000 by January 2007. Please feel free to add your constructive thoughts and comments, as they are most welcome.

21 July 2006

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