JOHANNESBURG (miningweekly.com) – Gold is fast becoming an asset class in virtually every fund manager's investment portfolio, which is going to take the gold price to the next level, says Gold Fields CEO Nick Holland.
Holland, who visited 60 fund managers in the last year, says that virtually every one of them is seeking the best investment entry point into gold.
"They have conceded that gold needs to be an asset class," he says.
Historically, the gold price has been supported by jewellery demand, but Holland says that investment demand may match that support.
"Within three to five years, you'll find that investment demand is probably the same as jewellery demand," he predicts.
He sees no impediment in the way of continued demand for gold exchange-traded funds (ETFs)
"When the ETF was launched, the World Gold Council thought that demand of up to 500 t would be an absolute ‘blowout' performance and that it would take five years to get there. Today, ETF volume is at nearly 2 000 t, and I don't see anything that is going to stop it from keeping on growing.
"Some would have you believe that it's all going to end up in tears, and that the ETF gold is all going to have to be sold, and that it's all going to come back on to the market. I'm not sure that's right. People will always be selling, yes, but there will be people buying and probably buying more.
"So, if you believe in the gold price, your investment thesis has got to be based on investment demand. That's what's going to take the gold price to the next level," he adds.
He sees a widespread demand for capital preservation: "People are not even talking about getting a return. What they're asking is how they can save their capital, that's why they're going into gold, and that's going to be the mainstay of the gold price going forward," Holland predicts.
The other factor is the possibility of reflation in the US. Holland sees US reflation as being inevitable reasons, because of the unlikelihood of the US government being able to raise the taxes of US consumers, who are already in debt.
He sees reflation as the only way of getting out of that debt, and reflation leading to inflation: "We're going to get serious inflation again. It may take another year to arrive, but when it does, I think you are going to see some interesting action in the gold market," Holland predicts.
The World Gold Council calculates that only 0,5% of the total worldwide funds under management are currently invested in gold and, if that has to double to 1%, there would be insufficient gold in the vaults of central banks to accommodate the increase in demand.
"That gives an idea of the potential growth in investment demand for gold," Holland says.