Long-term outlook for gold is upbeat given tech, emerging markets

When asked to explain the popularity of the Grateful Dead, frontman Jerry Garcia said, “We’re like licorice. Not everybody likes licorice, but the people who like licorice really like licorice.”

Gold investors are somewhat similar: People who like gold really like gold. And the latest report from the World Gold Council will give them something they really like.

The report, “Gold 2048: The next 30 years for gold,” released Thursday, makes three main arguments:

• Economic growth, especially in emerging Asia, is good for gold, which is an important store of value in areas with unstable currencies, as well as a popular wedding gift.

• Technology will boost good prices, as gold has become an increasingly important industrial metal. “Practically every item of electronic equipment contains a small quantity of gold, including the most recently released smartphone technology,” according to the report.

• Production could slow as governments become increasingly wary of pit mines and the use of chemicals, particularly cyanide, in processing.

“Discoveries have been scant; permitting timelines are long; capital costs have ballooned; ESG requirements are becoming more challenging; operating costs have risen; and political risk has increased,” John Reade, head of research at the WGC, argues in the paper.

Another factor favoring gold also stems from technology. Most gold in the world that has ever been mined is still around: Your gold ring may contain metal that was once worn by Cleopatra. But the amount of gold used in phones and other devices is minute, and probably not worthwhile to recycle, meaning that, for the first time, gold may start to be consumed rather than recycled.

“The long-term view is net positive,” said Mike Cronan, president of marketing services at Exchange-Traded Concepts, which has filed with the SEC for a physical gold ETF, Perth Mint Physical Gold ETF (AAAU).

Gold is often viewed as an alternate currency and a store of value in times of hyperinflation or depression. “Gold is positive against any currency in the long term,” Mr. Cronan said.

The short-term outlook is not so happy. The price of the yellow metal is down 6% over the past five years and has fallen 5% from its high this year on Jan. 25. The London morning fixing price Wednesday was $1291.75 an ounce. In fact, gold prices have never topped their 2011 peak of $1,771 an ounce.

The recent downturn hasn’t made the bulls happy. “Breaking below $1,300 was a real disappointment to the gold bulls,” said Dan Denbrow, senior portfolio manager at USAA.

“The short-term forecast is downward,” Mr. Cronan said. One reason: Investors tend to buy gold when the dollar falls in value, and this year the greenback has been rising.

“Think of gold and the dollar as being on a seesaw,” Mr. Denbrow said. “When one goes up, the other goes down.” Rising U.S. interest rates, which tend to propel the dollar higher, are also bad for gold.

Another short-term (and long-term) worry: Countries are demanding a bigger share of the profits from gold mines.

“This isn’t to say it isn’t good to share, but gold mining is a difficult business,” Mr. Denbrow said. “There has to be enough economic return.”

And, because gold thrives on worries about global worries, the prospect of Korean peace talks hasn’t helped, either.

“If there’s a stable Korean peninsula, that’s not good for gold, right?” Mr. Cronan said.