This as yet has not changed significantly

All this is mainly as a result of the high proportion of trade-related US dollars flowing into their coffers, which has made them proportionately more reliant on the value of those dollars held. As it stands, and because of the previous lack of profitability in exploiting new mines, most major sources of supply are declining and the global gold market currently faces an annual supply China Customized Sintered Powder Metal Pulleys Factory shortage of about 600 tonnes.The total market for physical gold is also small, and stands at around $3.As an example of potential demand, Japan and China have the eighth and tenth largest gold holdings in the world, but their current gold holdings are equivalent to just 1% of respective reserves.M3, inflation and the gold priceWith M3 money supply growing rapidly in most of the developed economies, the only outcome other than drastically higher interest rates, which looks unlikely, is a devaluation of currencies as has been the case throughout the last century.5 trillion, but the total value of the US stock and bond markets alone is close to $40 trillion.

One of the great advantages of CFD trading is that it permits you to seamlessly move within asset classes at little cost, and opens up a wealth of new contracts not just in stocks, but across a range of investment classes. An increase of 50% in their gold reserves for just these two central banks would be the equivalent of buying over 600 tonnes, which is around a quarter of world annual mine production. This as yet has not changed significantly and is a long term factor because it can take almost a decade for a rise in gold prices to generate exploration and eventual exploitation of new mines. according to the World Gold Council. In real terms though it looks dirt cheap, and long term investors should view $1000 as a realistic target in the next couple of years, which is 25% higher than the price right now.In terms of the existing supply, much of this has come from ongoing central bank offloading of gold, and here many developed countries have now stopped both official and unofficial sales of gold.

Why the outlook for gold is so bullishThe starting point for the analysis of any commodity is supply and demand, and for gold the simple fact is that supply is declining and demand rising. It is estimated that global gold producers have reduced forward sales by over 40%, which would result in a drop in supply of almost 1000 tonnes. This was a normal part of commodity hedging, and to some extent it might have helped keep the price down, but given the ongoing bull market, mining companies now run the risk of losing potential future profits if they hedge into rising prices. Our long term stance has been bullish since gold ended its 20 year bear market at the turn of the millennium, and for those CFD traders who are not aware of the big picture, this article updates our rationale for long term investment in gold. Russia and India's gold as a percentage of total reserves is slightly higher but stands at just 4%, so there is scope for additional demand here. For it to get back to those levels, which might be seen as extreme at the time, it would now need to be closer to $2000. The Russian central bank has hinted more than once that it plans to double its gold reserves, and the subject has regularly been mentioned by the Chinese central bank.The gold supplyWorld mine production began to level off in the 1990s as gold traded a wide range but remained significantly lower than previous peaks, and by 2004, production was falling at a rate of 5% p.. For asset allocation purposes, a 1% move into gold and gold stocks would equate to the purchase of eight times the annual production of gold worldwide. Clients of Blue Index will be aware that we carry out analysis of the gold price on a daily and weekly basis, and our track record in pinpointing the regular movements in the price of the metal has been excellent. We think there is a lot more to come.Demand for goldA big change in demand has come from central banks in China, Japan, India and Russia as a result of the need to diversify their vast US dollar reserves to some extent. 

 It should be noted that since we began daily coverage two years ago, gold is up 80% in dollar terms, and over 50% for sterling based investors.Another aspect of supply that is changing is forward selling from gold producers, where output prices were traditionally locked in to protect against potential future falls in gold. The two biggest gold stocks in the world are Barrick Gold Corporation, now valued at $36bn, and Newmont Mining, worth £21bn, and the total value of the top ten gold stocks is less than $150bn.In 1980, the gold price peaked at $850 in times of raging inflation and 27 years later it is still below that peak level. Previously, and as a result of the need to diversify, central banks carried out regular gold sales, but in some cases (see below) the reverse is happening as finance ministers see the need to protect against the inflationary consequence of fiat monetary policies that are rampant across major western economies. Should the dollar continue to move to lower ground as measured by the dollar index, which looks likely, further diversification into gold and other asset classes as a protection against the falling value of dollar reserves is likely to accelerate.a. Asset allocation and investment in goldBack in the 1970s commodity investment was an essential part of asset allocation for diversified portfolios, but despite the long term bear market ending just after the turn of the millennium, many investors continue to shun gold stocks. If you compare this with the current value of Exxon Mobil at $505bn and it can be seen how insignificant gold stock valuations remain given the continued potential of this sector