Gold prices broke down below the $1,500-per-ounce support level last week before reversing and closing back up at $1,512.90 per ounce for the week (see the following chart). This consolidation continues to provide a buying opportunity at this level, assuming gold resumes its upward trend later this year.

Looking ahead, two factors may significantly affect the supply side of the gold equation. As Michael Brush points out in his MarketWatch column,

“Central banks love gold again. Central banks are purchasing gold in volumes not seen in 50 years, points out Tom Winmill, who manages the Midas Fund. Given that the dollar has been so strong, central banks are diversifying away from the greenback. The biggest buying is coming from Russia, China and Poland. …

“There may be supply shortages. At the Denver Gold Forum in September, Barrick Gold cautioned that mining production could fall by 45% over the next 10 years barring an increase in investment in new mines, given how much mining companies cut these kinds of investments during the past six years when gold was weak.”

Rick Andrews is president of Avant Capital Management.