DAVID BERMAN
RTGAM



I wrote a gold story last week, which appeared in the Saturday issue of the newspaper (and online, of course), taking a skeptical look at some of the supply-and-demand issues currently driving bullion skyward. In its annual report on the gold-mining sector, released on Friday, PricewaterhouseCoopers takes its own look at gold.

PwC spoke with 44 gold-mining executives, asking them questions about such things as gold price assumptions and production levels - and what emerges is a far more bullish view on gold.

"As the price of gold seeks to challenge its [inflation-adjusted] high in 1980, the gold sector is in the midst of an exciting period of time," the analysts said in the report's introduction.

Their findings found that 73 per cent of executives believe that the price of gold will continue to rise for at least another year, with the price peaking between $1,400 (U.S.) an ounce and $3,000 an ounce - due mostly to concerns about the U.S. dollar and the country's massive fiscal deficits.

It seems to me, though, that the report actually supports a far more cautious view on gold. For one thing, executives seem far too optimistic, like what you might see near the peak of a market. Just 11 per cent believe that speculation is driving the gold price higher.

More importantly, they seem intent on increasing production levels, which threatens to create a glut of gold, for which there is little industrial or consumer use. Jewellery demand is down, replaced by investment demand, which can be awfully fickle.

The report found that 71 per cent of respondents planned to direct their rising cash levels to developing new projects, versus just 9 per cent who planned to raise dividends. And 82 per cent of gold producers expected their production levels to increase.

The junior exploration scene also looks crowded. PwC found that 56 per cent of mining companies listed on the Canadian Venture Exchange are exploring for, developing or mining gold. That's up from 50 per cent in 2009 and 42 per cent in 2008.

So, more players are entering the gold-mining scene, existing players are ramping up production levels and just about everyone agrees that prices can only move higher. This, to me, sounds dangerous.