Stonecap Securities Sees Gold Rising

Back in the days when gold first cracked $1,100, there were more than a few warnings about the gold price outstripping supply-demand fundamentals. Those warnings noted the rise in investment demand, but said that such demand was ephemeral in the long run.

As it turned out, investment demand has stayed strong - including demand for physcial, which tends to be long-term in nature. As a result, Stonecap Securities has raised its target price for gold to $1,450/oz.

“We believe precious metal prices will remain above 10-year averages for the foreseeable future,” they wrote....

“There are no significant sources of new supply coming onto the market in the precious metal sectors in the next two years,”...

When it comes to demand, they pointed out that physical gold demand rose 12% year-over-year, with especially strong demand in India and China. The World Gold Council reported that jewellery demand rose 8% year-over-year in the third quarter, suggesting that buyers are getting accustomed to higher prices, they wrote. And China imported about 209 tonnes of gold during the first 10 months of 2010, nearly 500% more than it did last year.

As the late Harry Browne noted a long time ago, demand is the chief mover of gold - not supply. That's what we're seeing nowadays, as demand combines with price acclimatization to keep gold up. The only way in which demand would be derailed is if the inflationary/fiscal threat waned.