Wed Sept 8 1:20 p.m. CT--In the wake of a steady uptrend in gold prices from the July 28 low, Dec COMEX gold is flirting with its all-time high at $1270.60 an ounce, hit June 21.
While the gold trade has been much written about and heavily traded for years now, a myriad of underlying bullish factors are likely to remain around for awhile, meaning that no end to the bull run is in sight.
The Nomura global economics and strategy team issued a September 8 report entitled: The Coming Surge in Food Prices. Bottom line? They believe another multi-year surge in food prices is likely to emerge ahead, which would of course be inflationary and as such supportive to gold prices.
WHAT LIES AHEAD?
According to economists at Nomura: "The surge in commodity prices in 2003-08 was the largest, longest and most broad-based of any commodity boom since 1900. The prices of energy and metals surged the most, but it was the agricultural market that saw the most fundamental change. It may not take much of a disruption in food supply to trigger another surge in prices given that the dynamics have become a whole lot more uncertain as a result of new and some increasingly powerful influences acting on both sides of the food supply-demand equation. Indeed, droughts this year in Russia and Kazakhstan and severe flooding in Pakistan and China have sent global wheat prices higher, while meat and sugar prices have hit 20-year highs, despite lackluster growth in many of the advanced economies."
The demand side will also contribute to the price surge, Nomura economists say.
"We expect another multi-year food price rise, partly because of burgeoning demand from the
world’s rapidly developing – and most populated – economies, where diets are changing towards a higher calorie intake. We believe that most models significantly underestimate future food demand as they fail to take into account the wide income inequality in developing economies. The supply side of the food equation is being constrained by diminishing agricultural productivity gains and competing use of available land due to rising trends of urbanization and industrialization, while supply has also become more uncertain due to greater use of biofuels, global warming and increasing water scarcity," according to an excerpt from the Nomura report.
Wheat has shot up sharply over the past month, along with several other key commodities, and the Reuters Futures CRB Index has been climbing since Aug. 25, surging from 260.22 to 275.33 on Wednesday.
STILL BULLISH FOR GOLD
Also in the news Wednesday was a UBS upgrade for its one-month forecast for gold prices to $1,300 a troy ounce, amid renewed concerns over European sovereign debt.
Gold finds support from future inflation expectations and will continue to act as a "safe-haven" play against financial and economic risk. Even though Dec gold is bumping up against its all-time highs, there are likely to be plenty of traders and investors willing to buy on dips to continue to building their hedges. $1,300 here we come.