David Hale Predicts $2,000 Gold By 2015

Global economist David Hale has said gold will keep rising and reach as high as $2,000 by 2015, largely due to demand in mainland China.

China could raise interest rates by another 75 basis points this year. Inflation concerns are growing. A bubble in the property market remains a risk. Wage pressure is another concern. In eastern China there is a labour shortage of 20m workers. "We are talking wage gains of 20% to 30%," Hale says.

China is shifting its strategy of export-led and investment-driven growth to a more balanced pattern of economic development, one more dependent on Chinese consumption. As a result, China's growth rate may be lower - around 6% - but more sustainable.

At the same time the Chinese government is pushing to internationalise the Chinese currency and reduce its reliance on a weakening US dollar. "It is not yet a fully convertible currency, so it's not yet a rival to US dollar." says Hale. But it could be in the near future.

The upshot of this, as well as of the depreciation of the US dollar, is that China will want to increase its gold reserves. The Chinese central bank has been quietly buying gold for the two to three years, but last year it upped its purchases, buying 450 tons. (So too did Russia, India and Mauritius, but in smaller quantities). China now has more than $2400bn of foreign exchange reserves, but a fraction of this is invested in gold. The IMF projects that China will run a current account surplus of $2600bn during the next five years. If it does, Hale says, its forex reserves could rise to the $5000bn-$6000bn range. And even if it keeps the gold share of its reserves constant, it will have to buy another 1000-1500 tons. In fact, some in the Chinese government have suggested that the central bank should increase its gold reserves to 10 000 tons. "This would give China larger gold reserves than Fort Knox."

The massive expansion of China's foreign exchange reserves has resulted in faster monetary growth and helped drive China's inflation rate up. This triggered a rise in the private demand for gold. Private holdings have rocketed from nothing three years ago, to 300 tons now. "This could easily increase to several hundred tons, with China rivalling India as the largest private buyer of gold in the world."

Hale holds up a picture of a bifurcated world, with inflation as a serious issue in major developing economies but a non-issue in developing ones.


As long-term forecasts go, this one is fairly mild. Using $1,350 as today's price, and giving until the end of 2015 for gold to get to $2,000, Hale is predicting an average annual gain of about 8.5%. Since 2001, gold's real annual gain from 2001 to 2010 has been 18.4% in U.S. funds according to GoldMoney. [My own calculation, using GoldMoney's annual gain figures, results in 18.0%.]