Following the World Gold Council’s report on the outlook for gold over the next 30 years we detail the core reasons why gold will gain between now and 2048
1.) Global Growth
Simply put economic growth is good for gold. Over the next 30 years the world’s economic growth will continue to be driven by China and India, two huge countries and economies that are already the world’s largest consumers of the yellow metal.
By 2035 estimates suggest China’s GDP will reach $63 trillion, giving it over a quarter of the global economy. It could then grow to a phenomenal $160 trillion by 2050, giving it 30% of the global economy. One estimate even suggests Chinese GDP per capita could reach $120,000 by 2050, twice the global average.
Likewise, India is set to become the world’s fastest growing economy with average growth of between 5% and 6%. By 2048 per captia income could reach $38,000 and the population could top 1.7 billion, 70% of that number being middle class.
This growth is in line with rising gold consumption in both economies. Last year India has saw an increase in its gold supply of 57%, with total supply being over 1,000 tonnes. Meanwhile the Chinese Gold Association reported a 9.4% increase to 1,089 tonnes.
2) Technology needs gold
Technological growth and innovation is changing the world, something facilitated in no small part by gold. Recent years have seen a rise in the importance of gold, not only as a store of value but as an important industrial material in its own right.
Gold is malleable, highly conductive and corrosion resistant. As a result it has assumed a critical role in the electronics industry. The World Gold Council’s 2048 report details how “practically every item of electronic equipment contains a small quantity of gold, including the most recently released smartphone technology. Gold nanoparticles (tiny particles of gold many thousands of times smaller than the width of a human hair) are also widely used in the healthcare and clean technology sectors, thanks to their unique properties and cost-effectiveness. We believe gold will continue to be at the heart of research and development (R&D) programmes around the world and help to tackle many of the challenges we face in 2048.”
As electric vehicles become the norm, gold will also enable the mass production of hydrogen fuel cells and high-spec electric vehicles. As investors look to finance the continued drive for improved electronics they will be funding demand for gold. “Gold remains the material of choice for a variety of applications across the technology space. That is expected to continue and evolve over the coming decades,” states the report.
Additionally gold is set to have a growing role in healthcare technologies and improvements.
3) Gold will get scarcer
While demand for gold will grow, supply is unlikely to keep pace – pushing up the gold price significantly. “The rate at which gold is being discovered has declined over the past three decades, even though exploration budgets have risen almost continuously since the early-2000s,” writes Mark Fellows, head of Mine Supply at Metals Focus in the World Gold Council report.
Although production of gold at the current rate would see a further 97,000 tonnes of gold added to the 190,000 tonnes currently in existence from mining, extractors face costing pressures as the price of mining rises by around 10% a year. In addition to this is the fact fewer “world class” mining sites are being discovered, further depressing the appetite to extract gold. Gold will come from a larger number of smaller operations – or supply will shrink drastically if this is not feasible.
“Although the industry can sustain production around current record levels for the next few years, global mine supply looks set to enter a period of secular decline over the longer term,” says Fellows.
4) Inflation is coming
Current forecasts suggest Japan, Europe and the US face real challenges when it comes to inflation. In the UK alone, current inflation sits around 3% while growth is around half that. Gold by contrast has, on average, gained in value by 8% annually since over the last 10, 20 and 50 years.
Following the current historic low growth and low interest rates there is an increasing belief that inflation will rise significantly as central banks begin to stop printing money and start ticking up their rates – something already seen in the US and the UK. Twinned to this is the growth of aging societies in the West with smaller working populations.
Economist George Magnus questions the viewpoint that less dynamic societies mean low interest rates: “According to IMF researchers, the larger the proportion of children and older citizens in the population, the greater the likelihood of higher inflation. The argument is that different age groups have different consumption and savings patterns, which affect inflation.”
If more people are consuming, rather than producing there is a real risk inflation could rise. “As age structure changes again in the future, we should not be surprised if inflation rises again, pushing bond yields up. It will then be up to central banks to determine whether to accommodate it with a slower rise in interest rates or curb it by pushing policy rates up more firmly, and, by implication, long rates too. Either way, the falling and low real rates of the past 30 years may be drawing to an end.”
5) The certainty of currency uncertainty
How geopolitical uncertainty effects markets has been an ongoing theme over the last few years. While this has had a noticeable effect on the gold price, the next 30 years could see gold gain in value significantly as the dollar loses its global hegemony and the Eurozone continues to struggle.
In addition to currency fluctuations “anticipation of – and reaction to – economic downturns and financial crises are likely to buoy investment demand [for gold] for many years to come,” says the World Gold Council’s chief strategist and head of research, John Reade, pointing to the elevated valuations of many asset markets, large debt levels in many economies and unresolved structural problems dating from the 2008–09 global financial crisis. Climate change will also play a part says Reade, as the global economy is increasingly affected by destructive weather events which drive the need for the insurance of safe assets such as gold.
The World Gold Council’s Gold 2048 report can be found here
This article does not constitute investment advice and should not be seen as such, it is based on observations based on published research.
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