A golden year for gold: How real is the precious metal’s price rally? – by Ian McGugan (Globe and Mail – April 3o, 2016)


Gold is, once again, golden.

The metal that has a near-magical ability to arouse strong emotions, from loathing to love, is riding a fresh upswing that has taken markets by surprise. After four years in which it lost more than a third of its value, gold has suddenly reversed direction and surged about 22 per cent this year. Gold mining stocks have rocketed even higher, with shares of giant Barrick Gold Corp. more than doubling this year.

Skeptics, including Goldman Sachs and Citigroup, believe the recent boom is fated to end badly. They predict bullion’s glow will fade in coming months as interest rates begin to rise, boosting payoffs from bonds and bank accounts. Higher rates may make gold, which offers no yield, look less attractive in comparison.

However, a growing number of other observers are declaring a new fondness for precious metals. Anita Soni and her team at Credit Suisse boosted their forecast for gold earlier this month, predicting that bullion will rise from its current level around $1,290 (U.S.) an ounce to $1,350 early next year.

“We believe the gold rally has legs,” agree the researchers at Pavilion Global Markets in Montreal. The folks at Capital Economics in London are just as enthusiastic. They say the metal will touch $1,400 an ounce in late 2017.

Behind this sudden outpouring of affection for a downtrodden commodity are some reasonable-sounding notions. The world’s supply of newly mined gold may be on the decline. Meanwhile, demand for the metal could be growing as people look for a haven from negative interest rates. On top of all that, there is the prospect of new demand from India and China.

Do these arguments stand up to inspection? Let’s take a closer look at some of the major pro-gold talking points.

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