Wednesday , 20 September 2017


Available Supply of Gold Declining: Secure Your Personal Gold Reserves Now

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The facts can’t be denied: China is on the hunt for gold deposits and mines. These gold-focused deals will add more ounces to the country’s pool of gold assets [which will only exacerbate the ex-China downward trend in the supply of gold outside China].  Given that what’s produced in China stays in China (where there is escalating domestic consumption), a widening of the fundamental market shortage in gold seems almost certain. Words: 1138

So writes Jeff Clark, (www.caseyresearch.com) in edited excerpts from his original article* entitled Is a Global Gold Supply Crunch Forming?.

This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Clark goes on to say, in part:

A number of market analysts and gold-industry insiders are warning about a possible shortage of gold supply. Barrick CEO Jamie Sokalsky recently stated that since gold production is insensitive to price changes there will be a very limited increase in supply from gold producers, even during sharp increases in the gold price. Rick Rule, a billionaire and avid gold investor, pointed out that while we’re seeing spectacular demand, a number of issues will make supply very tight in the future, especially among retailers….

Gold Production Outside of China Is Falling!

Total global mine production, although still 12.8% below the year 2000 level,  has been rising since 2008 – an average of 3.9% per year from 2009 through 2011 – but that is due to China and, upon excluding its output as shown in the chart below, you can see how it alters the global picture.

What’s important about China’s production is that unlike most other countries, it doesn’t reach the world market, since China doesn’t export gold [and, as a result,] there are reasons to believe the gap between global mine production vs. mine production excluding China could widen. MarketWatch reports that China’s Ministry of Industry and Information Technology has said that China wants domestic gold production to reach 14.5 million ounces by 2015, an increase of approximately 25% over last year’s levels. Given that what’s produced in China stays in China (where there is escalating domestic consumption), a “widening of the fundamental market shortage,” as per the MarketWatch article, seems almost certain.

Gold Supply Outside China Is Falling!

Since global production is lower without China’s production included, we decided to examine total supply (mine production plus scrap), backing out Chinese production and adjusting for Chinese gold imports. How much gold is left for the rest of the world after the Chinese take what they want? The contrast, as seen in the chart below, surprised even us.

As the chart shows above, while total gold supply has been growing since 2006, when it is adjusted for China’s imports, gold supply for countries outside China has actually been falling since 2009!

China’s Aggressive Purchasing Foreign Gold Mines!

…[T]he Chinese are also purchasing gold mines. As they have publicly stated before, acquiring large amounts of gold on the open market would almost certainly drive prices higher, as well as trigger greater volatility. One way to get around that is to purchase deposits that either are, or will be, producing the precious metal, allowing them to accumulate the gold before it hits the international market – and at cheaper prices than spot.

Here is a list of Chinese gold-mining acquisitions over the last year:

  • November 2011: Baiyin Nonferrous Group completes a takeover of Gold One International, a gold operator in South Africa.
  • December 2011: China Gold International Resources Corporation buys a gold mine in Central Asia, and is reported to be looking at Canada and Mongolia for its next targets. (It bought Canadian gold miner Jinshan a few years ago.)
  • December 2011: The Chinese take control of A1 Minerals, a gold exploration and production company, and rename it Stone Resources Australia.
  • December 2011: Shanghai investors buy a controlling stake in the Australian-owned Zara gold project in Eritrea.
  • April 2012: Sovereign Gold partners, along with Jiangsu Geology & Engineering, pay $4 million for a 30% interest in two gold tenements (an area of land in Australia where the holder may conduct exploration or mining activities). In November 2012 the firm increased its funding to fast-track exploration and development of the projects.
  • August 2012: A subsidiary of Zijin Mining Group (China’s top gold producer by output) buys more than 50% of Norton Gold Fields, acquiring a large, operating gold miner.
  • August 2012: China National Gold Corporation announces a $3.9 billion bid to acquire African Barrick Gold, Tanzania’s largest gold miner. If the deal is approved, China National Gold’s production capacity will double.
  • September-December 2012: China’s Shandong Gold Group announces its intention to purchase 51% of Australian gold miner Focus Minerals, which has four active mines in Western Australia. The deal is expected to be completed early this month.
  • November 2012: China-based Western Mining Group, through its subsidiary, buys all the outstanding shares of Inter-Citic Minerals, a Canadian-based gold exploration and development company..

The facts can’t be denied: China is on the hunt for gold deposits and mines. These gold-focused deals will add more ounces to the country’s pool of gold assets [which will only exacerbate the ex-China downward trend in the supply of gold outside China]. In spite of the gargantuan quantity flowing through Hong Kong, it’s entirely possible that we are underestimating China’s demand. In light of all this, it seems clear that concerns about future supply are real.

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Implications for Investors

There are some clear implications for us investors:

1. Supply will get tighter. It’s not because there’s a lack of metal in the ground [but because]….any given deposit [might not be

  • is economically viable,
  • politically feasible, and/or
  • ecologically agreeable.

Despite increased budgets on exploration (last year the gold industry spent a record $8 billion) and despite a 570%+ increase in the gold price since 2001, discovery rates are still decreasing. It’s clear that the gold industry is unable to grow supply to a significant degree in spite of increased spending and increasing margins.

2. Chinese production won’t show up at your local dealer. The country is keeping it all. When you read about growing global supply, you have to subtract what China produces and imports to determine what’s really available. As Chinese appetite continues to grow, this could become a front-and-center issue.

3. China will likely cause an even bigger imbalance. As our research shows, China’s share of supply is increasing, while the rest of the world’s is decreasing. Meanwhile, there is every reason to believe it will continue to acquire gold-mining assets. We think positioning yourself in likely takeover targets is a wise speculation (whether China is the buyer or not).

4. A public rush for metal will empty the shelves. There’s no rush like a gold rush, and if we enter a mania period, bullion will be hard to come by at retail outlets. Why wait for that? A mania is when you want to sell.

Conclusion

Our advice is simple: make sure your personal gold reserves are in place before a gold supply crunch becomes reality and, for leverage on the likely resulting mania, build a portfolio of the best-of-the-best gold stocks.

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*http://www.caseyresearch.com/articles/global-gold-supply-crunch-forming

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One comment

  1. China is clearly trying to take control of a major share of all Gold production, which makes great sense its Leader is a Trained Geologist and therefore sees the value of owning resources!

    If you can control enough of the production, you can control the value Globally by decreasing the supply which will increase the demand which controls the price!

    Soon I expect to see Gold being filtered out of seawater, once the price per ounce increases, using a process much like Reverse Water Filtration and I’ve heard that it has been tried by Koch, since they are in the high tech filter business.