The gold price is likely to peak in the first part of 1991, but will not exceed the US$450-per-oz. level, according to the Annual Review of the World Gold Industry, 1990, published by Shearson, Lehman and Hutton. The prediction is based on a tightening supply-demand picture (lower supply, renewed demand) combined with expectations for a weakening dollar as 1990 progresses. The London-based securities firm expects the supply-demand balance in 1991 to become tighter still, but the trend will be offset by slowing economies around the globe and a strengthening U.S. dollar.
As a result, the average gold price is likely to be US$390 in 1990, increasing to US$400-410 in 1991, says Shearson. “This implies that, compared with the 1990 average, real prices will be broadly maintained but not improved upon,” the report says.
Shearson says supply will decrease by as much as 30% in 1990, with a further reduction in 1991. At the same time, bargain hunters taking advantage of the price drop in late March should be able to absorb any gold becoming available.
In addition, political and economic uncertainty in Europe, while unlikely to generate any fresh investment, should prevent sales, the report says. A recent decision to allow non-insurance companies in Japan to invest up to 3% of their net asset value in gold will also reflect positively on the gold price.
Although mine production will continue to grow in the early 1990s, the rate of growth will be substantially slower than in the 1980s, Shearson reports. This prediction is based on two factors: the end of the exploration boom in North America and Australia, and lower grades and higher costs at South African mines. The slow growth will be slightly offset by increased investments in the Pacific Rim, production expansion in Latin America and an overall trend toward increased investment in developing countries.
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