Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
Is Silver a better bet than Gold in the Near Future? - 29th Apr 16
How to Use the CoT Report in Gold Investing? - 29th Apr 16
Sri Lanka is Intriguing: Areas to Consider for Value Investing - 29th Apr 16
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards - 29th Apr 16
Are We or Are We Not in a New Gold Bull Market? - 29th Apr 16
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16
Global Recession in 2016 and Beyond - The Obvious Evidence - 27th Apr 16
Why Gold Bugs Need to Stop Listening to The Fear Mongers and Start Thinking for a Change - 27th Apr 16
BlackRock’s Fink: Fed to Raise Interest Rates by Quarter Point ‘at Best’ - 27th Apr 16
Gold More Productive Than Cash?! - 27th Apr 16
Donald Trump Will Fire Janet Yellen and Be Trapped - 27th Apr 16
Money Saving Gardening by Propagating Roses From Cuttings - Propagating Rose Plants Over 2.5 Years - 27th Apr 16
Facebook Censors Pro Trump and Negative Hillary News - 27th Apr 16
This is the Era of the Democrats and Your Taxes are Going Up - 27th Apr 16
Long Awaited Gold Price Breakout - 26th Apr 16
Crude Oil Price Double Top or Further Rally? - 26th Apr 16
Madness in the Crimex Gold and Silver Trading Pits - 26th Apr 16
Britain's Prospects: GBP and BREXIT - MAP Wave Analysis - 26th Apr 16
CRB, Gold, Oil, Cotton, Coffee - 7 Must See Commodities Charts - 26th Apr 16
Gold Price Target is $3,000 and Silver is $75 per Ounce - 25th Apr 16
Parameters for a Stock Market Sell Signal-in-the-making - 25th Apr 16
Stock Market Dangerous Divergence - 25th Apr 16
Gold Miners Nub is the Sweat of the Sun - 24th Apr 16
US Dollar Price Forecast - 24th Apr 16
Stock Market Upside Objective Reached - 24th Apr 16
Why Leftist Greeks have more reasons than Liberals to favour Entrepreneurship and Support Entrepreneurs - 24th Apr 16
The Dow Jones is a Catalyst for Misplaced Stock Market Optimism - 24th Apr 16
Why Russia Harasses U.S. Aircraft and Ships - 24th Apr 16
Stocks Bull or Bear Market Rally? - 23rd Apr 16
A Bright Future for Solar Power in the Middle East - 23rd Apr 16
Silver Commitments of Traders – Halloween is Arriving Early This Year - 23rd Apr 16
Good News, Bad News, Both Favor Gold And Silver - 23rd Apr 16
Mish's Sure Fire Proposal to End Japanese Deflation - 23rd Apr 16
Mish Shedlock: “EXCUSE ME MR. PRESIDENT, IS THAT A JOKE?” - 23rd Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

Gold Supply Issues Offer Additional Price Underpinnings

Commodities / Gold and Silver 2012 Oct 30, 2012 - 12:27 PM GMT

By: Pete_Grant

Commodities

Gold turned defensive in recent weeks, weighed by global growth concerns, persistent economic uncertainty in the eurozone and the United Sates, along with a rising lack of clarity about the likely outcome of next week's U.S. Presidential election. However, downside potential is thought to be limited by continued robust demand for the precious metal as a hedge against the global debasement of fiat currencies, as well as ongoing central bank demand for the purposes of reserve diversification.


Most of our readers are probably pretty well aware of these macro-drivers on the demand side, but it's also worth noting some significant supply side considerations:

First of all, and this is a topic we've discussed on numerous occasions, none of the mining supply from China is making it to the open market. Essentially, every ounce of gold mined in the world's largest producer is going right to their insatiable reserve building effort.

Secondly, James Rickards, a partner at JAC Capital Advisors, suggested via Twitter last week that the primary takeaway from the Sydney Gold Symposium was that the "Chinese are buying gold mines in Western Australia faster than lawyers can write the contracts." It would seem that the Chinese have their eyes on some of the output from the world's second largest producer of gold as well.

Thirdly, the fourth largest producer in the world is also in full-on accumulation mode. The World Gold Council says Russia has more than doubled its gold reserves in the last five years and now holds the fifth largest stockpile. It is likely that much — if not all — of their mining output is going right to reserves as well.

And finally, labor unrest in South Africa has negatively impacted production in the fifth largest producing nation. Earlier in the month, Reuters reported that strikes were costing AngloGold 32,000 ounces of gold each week, while Gold Fields was losing 2,300 ounces a day at the two mines affected. According to Reuters: "Wildcat strikes that started in the platinum mines have left more than 50 people dead and spilled to other industries, undermining investor confidence in Africa's biggest economy and tarnishing President Jacob Zuma's government."

While the unrest eased last week, the situation remains volatile, and police fired rubber bullets at striking workers outside a mine owned by Anglo American Platinum just today. The strikes have already reportedly cost South Africa ZAR10 billion ($1.5 billion), forcing the finance ministry to lower its 2012 growth forecast to +2.5%, from +2.7% previously.

We know that China has been actively seeking to acquire African gold interests as well. Most recently, state-owned China National Gold entered into talks with Barrick Gold to gain their majority stake in African Barrick. Those discussions are ongoing.

If you would like to broaden your view of gold market, we invite you to sign-up for our regular newsletter and receive quality commentary like what you are now reading. It's free of charge and comes by e-mail. You can opt out at any time.

Just to round out the list of top-five gold producers: The United States is number-three. But the takeaway here is that nearly a third — and likely more — of global gold production is being impacted either by sovereign reserve building or labor strife. That's huge.

So while supply issues often get short-shrift in the financial press, it's important to realize that they too provide significant underpinnings to this market. Simple supply and demand economics, strong demand relative to available supply, suggest that the long-term secular bull market remains dominant and that short-term corrective activity should continue to be limited.

By Pete Grant , Senior Metals Analyst, Account Executive
USAGOLD - Centennial Precious Metals, Denver

For more information on the role gold can play in your portfolio, please see The ABCs of Gold Investing : How to Protect and Build Your Wealth with Gold by Michael J. Kosares.

Pete Grant is the Senior Metals Analyst and an Account Executive with USAGOLD - Centennial Precious Metals. He has spent the majority of his career as a global markets analyst. He began trading IMM currency futures at the Chicago Mercantile Exchange in the mid-1980's. In 1988 Mr. Grant joined MMS International as a foreign exchange market analyst. MMS was acquired by Standard & Poor's a short time later. Pete spent twelve years with S&P - MMS, where he became the Senior Managing FX Strategist. As a manager of the award-winning Currency Market Insight product, he was responsible for the daily real-time forecasting of the world's major and emerging currency pairs, along with gold and precious metals, to a global institutional audience. Pete was consistently recognized for providing invaluable services to his clients in the areas of custom trading strategies and risk assessment. The financial press frequently reported his expert market insights, risk evaluations and forecasts. Prior to joining USAGOLD, Mr. Grant served as VP of Operations and Chief Metals Trader for a Denver based investment management firm.

Disclaimer: Opinions expressed in commentary e do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife