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"The price of gold is trading today at US$1,328.00 per ounce on the NYMEX. One year ago gold was trading at US$1,800.00 per ounce and the major sell-off has prompted a debate among analysts regarding the outlook for gold over the next two years. I have found a range in the price forecasts from a low price of US$1,000.00 to a high price of US$2,500.00 per ounce by the end of 2014. Our outlook has a gold price of US$1,550.00 per ounce by the end of this year and by the end of 2014 our outlook rises to US$1,750.00 per ounce .
We expect that gold demand for jewellery in China and India will continue to increase over the next two years. While the US economy has improved there is still a large budget deficit and a huge trade deficit which will result in some Central Banks and sovereign funds buying gold as a substitute for the US dollar. We believe that the current bond purchases by the Federal Reserve in the long end of the bond market will be phased out in the next two years which will result in modestly higher long term interest rates. This will cause an outflow of capital from the long end of the bond market. In previous periods when capital has left the long end of the bond market the money has flowed to the short term bond market, the equity markets, and the commodity markets. One should remember that the size of the bond market is much larger than either the equity markets or the commodity markets. Thus a relatively small percentage of funds exiting the bond market can have a significant impact especially in the commodity markets. We expect that some money from the long term bond market will increase the demand for gold over the next two years.
Our outlook for gold supply over the next two years is lower than some of the other gold industry forecasts. We continue to see labour shortages, power shortages, permitting problems, and rising economic nationalism in some jurisdictions which has resulted in the delay of some projects that were to begin in the next two years.