In the last few weeks, several research institutions have issued bullish outlook for the yellow metal. On September 9, I posted a bullish article on gold titled ‘Gold sets new 18-month high: How strong is the bull?.' I have revised upwards my outlook on gold. Gold investors might be worried thinking if a bubble is building in gold prices. I don't think any such bubble is building in that non-fiat asset.
On Monday, gold ended at new record high at $1,140. The weakness in the dollar has been a major factor behind the gains in gold. Despite dollar firming up on Tuesday, gold held firm at $1,140. It took just under 70 days for the yellow metal to move up from $1,008 per ounce (set on Sep 9) to $1,140 per ounce. Adjusted for inflation gold should be trading at $1,600. However, inflation is just one among many factors that influence gold price. So, how is the gold price shaping up vis-à-vis demand-supply and other factors?
Gold as an asset class is witnessing increased interest
Gold as an investment asset class was never and will never be an effective hedge against inflation. Thanks due to market imperfections, and the need to sustain fiat economy by governments all over the world. However, gold always plays an important role as a protector of wealth, and in these current times of financial instability, that role has taken on a newfound prominence. Recently, the Reserve Bank of India purchased 200 tonnes of gold from IMF. That sale raised $6.7 billion, equivalent to SDR4.2 billion, and was executed at market prices, in line with the IMF's Articles of Agreement.
In the last one month, Newmont Mining Corporation (NYSE:NEM), one of the world's top producers of gold, saw its share price rise by 13.25%. It gained much more in the last three months – to be precise it gained $14.05 or 36.24%. The jump is no surprise, since Newmont's third-quarter profits more than doubled as the company sold approximately 1.3 million equity ounces at an average realized gold price of $964/oz at operating cost of about $404/oz. Since then gold prices have remained above $1,000 levels.
In 2008, Newmont's proven and probable gold reserves were 85 million oz., in such places as Nevada, Peru, and Australia. In 2008, Newmont's proven and probable gold reserves were 85 million oz., in such places as Nevada, Peru, and Australia. The company outlined at the Denver Gold Show in September that it has multiple opportunities for organic -- Nevada we have a portfolio of over 18 projects, from exploration through to the advance stages of development that provide the opportunity for up to 7 million ounces of new reserves that will leverage its existing infrastructure and the technical expertise of its employees to provide additional production beginning in 2011 at competitive costs.
Of course, Newmont Mining Corporation share price is attributable not just to factors such as revenues and gold reserves.
