by Markus Buler, Euro on Sunday
DHarry Dent’s price target is far from enticing to gold bulls. $900 over the next two years. The market letter and book author Dent sees them financial markets generally in a bubble. Everything will fall. No matter whether shares, cryptocurrencies or precious metals. Afterwards, of course, there should be buying opportunities. Bitcoin could rise towards a million dollars. But first everything will collapse. $900 in gold? Let’s forget for a moment that Harry Dent is notorious as a crash prophet and has issued such price targets several times in the past without them ultimately being achieved. But is it really possible for the price of gold to fall that low?
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Impossible, some argue. Production costs for most mining companies have now risen to over $1,000 an ounce. If the price of gold fell below this, the business would become unprofitable and would be closed. The production costs are therefore a natural support for the price of gold. Unfortunately, it’s not quite that simple. A mine doesn’t work like a car that you just turn off and start again. It takes weeks to shut down a mine and months to start it up. Corporations will therefore consider carefully whether production should be shut down immediately if the price of gold falls. Of course, many producers are now in such a good financial position that they can initially store part of the gold produced in anticipation of higher prices. In addition, we see another phenomenon during phases of lower gold prices: gold producers throw their mining plans overboard and mine the ore that is easiest to access first in order to reduce costs. This brings relief in the short term, but creates problems in the long term.
Possible, but unlikely
Unfortunately, there is nothing else that makes this target price impossible. But there are many reasons why it is unlikely. Even in the disinflationary phase of 2013-2015, gold never fell to such a low price level. From a technical point of view, there are many indications that prices will tend to rise in the coming months. And even if the central banks are talking about interest rate hikes – one deflation they certainly don’t want to risk it.
Currently, gold seems to want to overcome the weak phase. Producers like Barrick Gold remain (WKN: 870 450) or Agnico Eagle (860 325) interesting not only because of the dividend yield. They will do well in an environment of rising gold prices. By then, Harry Dent will probably have long since fallen into oblivion.
Notice of Conflicts of Interest:The majority owner of the sole shareholder of Finanzen Verlag GmbH, Mr. Bernd Frtsch, has taken direct and indirect positions on the following financial instruments mentioned in the publication or related derivatives that may benefit from any price development resulting from the publication: Barrick Gold.
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