Tags: Sprott | gold | bubble | currency

Sprott Group: Gold Prices Are Still Headed North

By    |   Wednesday, 10 April 2013 08:08 AM

Gold is far from "bubble territory" and is acting like any currency should, according to asset manager Sprott Group.

The yellow metal is also fairly liquid — a separate survey estimated the world's gold supply is about 377 million tons.

Sprott slammed a recent report from Societe Generale, titled “The End of the Gold Era,” saying the bank erroneously regards gold as a commodity, and ignores the impact of the titanic volumes of money being printing by central governments.

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“Gold doesn’t really work as a commodity because it doesn’t get consumed like one. The vast majority of gold mined throughout history remains in existence today, and the total global gold stockpile grows in small increments every year through additional mine supply,” Sprott maintained.

“This is also precisely why gold works so well as a currency. Total gold supply can only grow marginally, while fiat money supply can grow exponentially through printing programs.”

The Societe Generale forecast called for gold to slump to $1,375 per ounce by the end of 2013 from its current pricing of about $1,570.

The bank said, “The gold price is, in our view, in bubble territory. Investors have pushed the gold price sharply higher over the past 10 years with the past five-year rally driven by fears that aggressive central bank [quantitative easing] would lead to very high inflation. But inflation has so far stayed low.”

According to Sprott, since 2000, for every U.S. $1 trillion added to global central banks’ balance sheets, the price of gold has appreciated by about $210 per ounce.

Accordingly, Japan’s recent massive quantitative easing announcement is a “thing of wonder,” Sprott said.

The Bank of Japan, with its new $75 billion in monthly yen printing, along with the U.S. Federal Reserve’s announced $85 billion in additional monthly stimulus, could by themselves add U.S. $1.97 trillion to the collective central banks’ balance sheets in the next year.

Sprott said the only basis for a gold “crash” would be if central banks begin to balance their budgets.

“There is no question that gold could lose its utility if western governments made a concerted effort to fix their fiscal imbalances, but who honestly believes that’s going to happen any time soon? We certainly don’t — especially in the U.S.”

A recent Thomson Reuters annual survey estimated the global supply of gold is 377 million pounds, but the true figure is hard to estimate because gold has been mined for so long — six millennia, according to USA Today.

The BBC estimated the true range is from a low of 342 million pounds to 5.5 billion pounds, the newspaper said.

USA Today said expert estimates are likely to grow from here, perhaps in part because the U.S. Geological Survey calculates another 114 million pounds have yet to be discovered.

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Gold is far from "bubble territory" and is acting like any currency should, according to asset manager Sprott Group.
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2013-08-10
Wednesday, 10 April 2013 08:08 AM
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