The Gold Report: You have doubled down on your declaration that “Nov. 5 was the bottom for gold and gold equities.” What makes you so certain?
Gwen Preston: The primary reason is fundamental: supply and demand. Demand for gold remains strong despite headlines about exchange-traded funds liquidating their holdings. Physical buyers are buying a lot of gold. These include the central banks of China and Russia, countries pushing for an alternative to the U.S. dollar for international trade, and individual buyers in India and China, people who have long believed in gold as a store of value. The latter buy when it’s cheap, which has resulted in $1,200 per ounce ($1,200/oz) becoming a real bottom for gold. Every time the price falls toward $1,200/oz, the Shanghai premium—the extra amount that buyers in China are willing to pay at that moment to get their hands on an ounce of gold—spikes.
Meanwhile, gold supply is starting to shrink. Producers let costs climb out of control during gold’s bull market. When the bear market came, they then had to cut costs. New mines and mine expansions were deferred or canceled and output from higher-cost operations was cut back. We have reached peak gold—we will never again produce as much gold as we’re producing now.
TGR: What are the other reasons in support of your argument?
GP: The second reason is that, even after expenditures were reined in, the all-in sustaining cost to produce an ounce of gold sits at a global average of about $1,200/oz. So the market must be willing to pay at least that much.
The third reason is gold’s intangibles: currency concerns, global debt worries and geopolitical risk. Gold is the only currency that exists outside the …read more