Michael Lynch-Bell, head of mining and metals at Ernst & Young,
"At the same time, gold supply is stagnating. After prices bottomed at $252 an ounce during the late '90s mining companies cut spending and stopped exploring. Geology grads avoided gold, leaving a shortage of skilled workers. Now, as prices recover, mines can't keep up: gold extraction rose by only 1 percent last year. Given the time it will take to ramp up production, supply is expected to lag demand until the beginning of the next decade at least.
To gold bulls, this is a win-only situation. While most investors are sweating over the Fed's next move, gold bugs are not. Hong Kong's Dr. Doom, Marc Faber, who correctly forecast the global commodities boom in 2001, says that if the Fed stops raising rates, the continuing flood of cheap dollars will continue to drive up the price of gold. If the Fed raises rates, ending the era of easy money and slowing the economy, investors will still buy gold, as a hedge. His call: gold at $6,000 within the next 10 years."
© 2006 Newsweek, Inc.
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