The wild excitement and crazy price fluctuations of 2011 seem to be a distant memory. Meanwhile, the mainstream financial media barely talks about gold and most portfolio managers are underweight precious metals and mining shares.

While the casual observer might interpret this relative lack of interest in gold as a sign that the yellow metal has lost its luster as an investment vehicle, keen observers know that the recent period of relative dormancy is exactly what the gold bull needed to set the stage for the next leg higher in its secular bull market.

4 fundamental reasons gold is still in a super cycle:

  1. Rising marginal cost of production – Morgan Stanley recently pegged the marginal cost of gold production at $1,254/oz.  This is due to a whole slew of factors which are unlikely to abate any time soon (rising labor costs, lower grade ore bodies, higher mine infrastructure costs, challenge of finding new economically feasible resources in safe jurisdictions, etc.)
  2. 2014 appears to be the year of peak gold supply with the World Gold Council and Morgan Stanley forecasting declining global gold supply for the next four years:

Click to enlarge

global_gold_supply

3. Global central banks (namely the Federal Reserve, BOJ, and ECB) are committed to creating inflation and fiat currency devaluation at any cost:

   Reuters – Yellen resolved to avoid raising rates too soon, fearing downturn

   PIMCO – Mrs. Sandman

  The Guardian – ECB gets ready to pump cash into eurozone as fears rise over recovery

  WSJ – BOJ Steps Up ETF Purchases as Shares Slump

4. The long-term uptrend in gold remains very much intact despite the recent correction (long-term trends are a fundamental factor in financial markets):

Gold_Monthly

Monthly logarithmic chart of gold since 1990