Gold prices dropped $3.30 to $1,367.70 in midday trades Friday, but producers of the precious metal believe a new rush will begin in 2011.
In a survey published Friday by PwC, Canadian mining companies are predicting gold prices will remain high throughout 2011.
Among the key findings:
That’s good news for Vancouver’s mining sector, which is home to dozens of gold companies that both produce the commodity and explore for it.
“I think gold prices are looking pretty good,” commented John Gravelle, PwC’s Canadian mining leader. “[But] you can never really tell with gold, it’s not like the base metals where you can look at the China story, you can see they’re building cities they’re going to need base metals to build them. That’s an easy supply demand thing to see.
“But what you see with gold is you’ve seen the price going up quite a bit, and you also see people not having any faith in paper currencies. So where are people going to put their money?”
Large deficits and rising debt levels have weakened global currencies such as the greenback and the Euro, Gravelle said, and that is what is driving gold prices through the roof.
The survey said 70% of gold companies plan to use the additional cash from high prices to find new projects or increase a mine’s reserves to feed production.
As a result, 78% of survey respondents say expanding existing gold deposits will be their top strategy to step up production profiles.
Meanwhile, 54% of respondents said their strategy will be to search for new projects, and 37% want to increase reserves through mergers and acquisitions.
Gravelle said recent merger and acquisition activity where gold companies have been targeted is not unlike a similar rush in 1980, when gold prices hit all-time highs when adjusted for inflation.
“This year has seen a surge of mining deals take place, which was also notable trend in 1980 when the price of gold was the highest.”