Updated: Dec 31,2004

December 31,2004 Gold Market Prediction For 2005 Charles Kubach, Mine-Engineer.Com Gold began 2004 at $415 per ounce, fluctuated between $375 and $454/ounce. Gold ended the year at $437 per ounce, for a increase in value of 5%. In 2005, The Dow Jones Average Index finished the year 2.6% above its 2003 year end finish of 10,453. I estimate that gold will trade in the range of $400 to $475 per ounce for the year 2005. Why this will occur: The USDX decreased 7% in 2004, while gold prices increased 5%, which when the dollar weakness is taken into account amounts to only a 0% increase in the price of gold for 2004. The demand for gold outstripped the supply of gold most of the year by about 15%, with supply nearly catching up at the years end, due to the resumed production at several mines. The annual inflation rate for 2004 was 3%. This scenario led to some short term price spikes, peaking at $454/ounce. Converting rupees to US dollars, one could purchase gold for the equivalent USD price of $420/ounce, while converting Euros to dollars, one could purchase gold for the equivalent USD price of $409/ounce. A bargain for the users of both currencies, currently. There is a price sensitivity point, where when gold ascends beyond this value, the demand will markedly decrease, as consumers have fixed capital, and will purchase gold, but in lesser amounts. I peg this amount to around $435/ounce, currently. And offer this as an explanation as to why the gold price did not shoot skyward when both the devalued dollar and the demand was greater than the supply for the yellow precious metal. The supply of gold projected for the calendar year of 2005 is roughly about 7 percent less than the demand. The US Buck (USDX) has not yet bottomed, but should next year, with no more than a 4% decrease from present levels. Rising inflation (>3%), and the Siamese twin, rising interest rates, will tend to stop the decreasing dollar index (USDX) and gradually strengthen the buck during the upcoming year. Numerous new industrial uses for gold were announced during the past year, including fields ranging from medical, electronics and energy. While these new applications hold much promise for the future of gold, they will have little impact on the usage of gold in 2005. The processes have to be developed, and the production of equipment utilizing them has yet to be produced in mass scale. Advertising campaigns to promote gold use will also continue to have a positive effect, generating some consumer interest. The World Gold Reserves are currently 34,000 tons, of which the US holds 25% (Germany, Italy, France and Switzerland hold 33%). The 2004 total annual gold supply was roughly 3,300 tons, with demand taking 100% of the production. Projected 2005 annual gold supply is 3,500 tons, a slight increase from last year. This is due to some new mines going on line in the coming year, with a few old ones going off line, but the net effect should be a 6% increase in the gold supply available from all sources. A combination of the high price for gold, plus the increased supply will tend to keep the top on the bullion price around the $475/ounce point. The major factor contributing to the increased price of gold from the current $450 range, will be the estimated 4% decrease in the value of the Buck in 2005, combined with production levels just under the demand rate will combine to perhaps spike the gold price near the $500 level, but it should quickly fall back into the mid $400 range. If a US investor purchased 100 ounces of gold in January 2004, it would have made a 5% return, 2.4% higher than the Dow. In 2004, investors will continue to hold and purchase gold diversifying their investment portfolios. When all of the information is considered, gold will have a nice year in 2005, but not a breakout year. That's enough for me to open a bottle of Dom, and toast the shiny yellow precious metal, after all, it is a New Year. But that's just my opinion. Charles Kubach Mine-Engineer.Com

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