(Kitco News) --Rising investment demand, at a time when the mining industry collectively is having a hard time ramping up output, is likely to mean stronger gold prices for the foreseeable future, gold-mining executives say.

“I think there’s another wave to come,” said Sean Boyd, vice chairman and chief executive officer with Agnico-Eagle Mines Ltd., one of several CEOs from some of the world’s largest gold-mining companies interviewed by Kitco News this week.

Gold prices came within striking distance this week of all-time records set in June. The December contract peaked at $1,256.60 an ounce on the Comex division of the New York Mercantile Exchange Wednesday. The record for any most-active contract was the $1,266.50 high hit by the August futures back on June 21.

 “I think this bull market will continue,” said Chuck Jeannes, president and chief executive officer of Goldcorp. Inc. “I personally think that people make analysis and consideration of the gold market too complicated. I tend to look at it in simple supply-and-demand fundamentals.”

Constrained Mine Supply Supportive For Gold Prices

On the supply side, the longer-term trend has been declining or static global mine output, he and others said.

The World Gold Council’s fourth-quarter trends report showed that global mine production was 2,554 metric tons in 2009, up from 2,409 in 2008. However, last year’s mine production was below 2,593 metric tons back in 2003, even though sharp price rises for any commodity normally encourage producers to increase output.

While companies are always working to bring new projects on line, a number of older mines are in decline. There have been limited major new discoveries, and when there is one, they take a long time to bring on line. Thus, output remains contained even though gold prices have increased by roughly 500% over the last decade from around $250 an ounce to above $1,250.

“There haven’t been any major, major gold discoveries of sizeable high-quality deposits,” said Boyd. “A lot of things being talked about these days are retreads or things that have been around for years.

“Here we are at $1,250. You would have expected a massive increase in mine supply, and it hasn’t materialized.”

This will be the case even if gold goes to $1,500, he continued.

“The lead time to build these things is getting longer, whether it’s permitting issues or dealing with regulator on other matters, and the capital costs to build mines are through the roof these days,” Boyd said. “It’s just a tough business. People don’t realize how difficult it is to actually create value in this space.”

Economic Uncertainty Creates ‘Perfect Climate’ For Investment Demand

Meanwhile, investment demand “has gone through the roof,” Jeannes said. Investors turn to gold as a store of value in times of geopolitical and economic uncertainty.

One of the more easily measured forms of investment is the amount of metal held in exchange-traded funds, which trade like a stock but track the price of the commodity. Metal is put into storage to back the shares, and Barclays Capital reported this week that the total in exchange-traded products around the world hit a record 2,107.7 metric tons on Wednesday.

The holdings by the largest such ETF, SPDR Gold Trust, stood at 1,294.1 metric tons as of Thursday, according to its Web site. Despite being a little less than six years old, this ETF’s holdings were more than all but four central banks and the International Monetary Fund, according to official reserves compiled in June by the World Gold Council.

 “Certainly, there is a lot of stress in the financial system, and primarily in the U.S.,” Jeannes said. Investors are worried about increasing deficits and potential for economic weakness to persist.

“I don’t see these factors that have contributed to strength in the gold price reversing themselves any time soon,” Jeannes said. “So I’m quite bullish on continued strength in the gold price.”

Tye Burt, president and chief executive officer of Kinross Gold Corp., described the gold price as a “barometer” for overall sentiment in financial markets.

“With concerns over currencies and deflation, gold prices continue to be strong as investors look for a high-quality place to put their money,” Burt said. “When you look at the increase, for example, in the amount of gold held by ETFs and investor purchases, this has been spectacularly positive for gold in the near term.”

Farther down the road, he continued, the potential for inflation is also bullish for gold, Burt said. Investors often seek gold as a hedge against rising price pressures.

While consumer-price inflation in the Western economies is considered tame, many worry that the massive fiscal and monetary stimulus measures from central bankers and governors will eventually lead to a jump in inflation whenever the economy does strengthen.  

Meanwhile, CEOs pointed out that one of the major factors that pressured the gold market back in the 1990s, which was heavy central-bank selling, is no longer a major threat. Data in the World Gold Council’s most recent trends report showed that the so-called “official sector” made net purchases of 7.7 metric tons in the second quarter. Sales among the 19 signatories of the European Central Bank Gold Agreement were “merely a fraction of a ton,” the WGC report said.

“I think we’re in the perfect environment here,” Boyd said. “We’ve got low real interest rates. We’ve got the prospect for more liquidity being injected into the market. And underlying that are financial uncertainties. So this is the perfect climate for gold.”

By Allen Sykora of Kitco News; asykora@kitco.com

Editor’s Note: Meet the Kitco News Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration www.kitcoeconf.com.