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Spot Gold Prices Set To Rise – February 2009

According to Citigroup analyst Yutaka Yoshino the spot gold price could reach $1,190 or $1,300 in March or May. However, it first has to breach the significant $933 level.  Failure to do so will see prices fall back.  In 6 short years the price of gold has dramatically reversed.  In 2001 the production costs were approximately $160 per ounce as prices dipped to $270.  By the start of 2008 production costs had risen to between $400 – $500 an ounce as prices briefly touched $1000.  Just as the outlook for gold was too bearish in 2001 it became far too bullish in 2008.  Credit for the rise in the gold price has been given to the consolidation that has taken place in the mining industry as well as a dramatic tumble in the price of the dollar and the US economy sliding into recession.

One of the biggest influences on gold prices can come from the sale by central banks.  In September 2004, a new five year agreement limited sales to 500 tons per year.  However, bank sales did not reach this limit until 2008 and many are guessing that banks are no longer willing or eager to sell their gold.  On 18th April 2008 the IMF (International Monetary Fund) hinted that it might look to sell or off load as much as 13 million ounces in future years.  This may yet come to pass as they recently stated that if everyone called on the Fund for cash it would run out of money in 6-8 months.  On 17th September 2008 GFMS Ltd confirmed that world mining production would be down 2.3% in 2008 to 2,422 tons, the lowest since 1996.  On 20th November 2008, the World Gold Council advised that the worldwide demand for gold was up 18% in the quarter from the previous year.  By 21st November 2008 an analyst was quoted on Bloomberg news as saying that world gold production was down 3% in 2009 and down by as much as 5% in 2009.  This reduction in world production has coincided with the US likely to dilute the value of its currency in order to pay for financial bailouts – is it any surprise that we are witnessing a return to a bull run on gold.

Added to this has been market rumours of a shortage of gold coins and, of course, the continuing uncertainty and panic about the global economy, will simply keep the spot gold price rising.