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« Do Western Central Banks Have Any Gold Left??? Part III | Main | Bounce in Gold Is a Dead Cat – Fade The Rally »

Is It Time To Make Your Move?

Is It Time To Make Your Move?
The mainstream media has once again missed the bigger picture when it comes to precious metals.

By Ed D'Agostino

By Ed D'Agostino, General Manager

The mainstream media has once again missed the bigger picture when it comes to precious metals. Since April, they've focused all of their coverage on demand for gold. Their reports almost always ignore the other side of the price equation: supply.

Many people assume that the supply for precious metals, particularly silver and gold, is infinite. If we need more precious metal, we mine more… right?

That might not be the case for much longer. Beyond the obvious challenges associated with mining – from exploration and verification of resources, to developing and permitting, to compliance with more and more regulations and increasing operational costs – there is another factor to consider. And that is resource nationalization and government interference.

Our business partners at Gold Bullion International recently sent me a list of mines that have experienced shutdowns over the past two years. Included on the list are the largest mines in the world. Be it extended shutdowns or new taxes, the effects will soon start to register in the physical market.

Here are a few from the list, all effected in 2013:

1) Indonesia – the largest gold mine in the world, the Grasberg Mine, owned by Freeport-McMoRan Copper and Gold, had to cease operations for several weeks pursuant to a government safety investigation, after a terrible accident at a nearby training facility left 28 workers dead.

2) México – three gold and silver mines, including El Coronel, the country's largest, have been closed due to labor conflicts. On top of that, Mexican officials approved a new 4% mining royalty in April.

3) South Africa – the news out of this country gets worse every day. Serious labor disputes threaten access to the world's platinum supply.

Precious metals mining is truly a global effort. Limited access to metals coming from global mines would have a significant impact on prices. Supply is anything but infinite.


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Reader Comments (2)

Come on. You and I both know that mine supply is a minor factor in the world gold trade due to the fact that gold is stockpiled and worn vs used up like wheat or oil or even silver.

Some 173,000 tonnes have been mined over the course of human history, give or take. Most of that supply is still extant. Roughly 1,700 tonnes is mined a year.. Let's just use rough numbers and say that supply increases between 1-2% a year...year after year after year. That's what makes gold the ideal money.

New supply from mines is a trickle. If mine supply is cut by even 25%, would that make a material difference in the overall supply/demand equation? No. It might have a small effect at the margins. Maybe seeing mines shutting down as they can't make a profit at $1,200-1,300 gold would have a psychological effect, but this article conflates mine supply with overall supply. The latter is a small subset of the former. Changes in the rate of trickle really don't matter very much. That'll also be the case when gold is at $3,500 and everyone's looking to INCREASE production. As D'Agostino says, the common misconception is that, "If we need more precious metal, we mine more… right? NO, it doesn't work like that with gold. With (virtually) every other commodity, yes. With gold, no.

The real questions regarding supply are how much actual physical gold are the western central banks willing to surreptitiously dump onto the market from their underground hoards to increase actual supply and how many naked shorts will their agents, JP Morgan, Goldman, etc. put on in the paper market to make it LOOK as if a lot of supply supply has entered the market? So far, it's a lot. Can they continue to play this deceitful game? Yeah. Not indefinitely, of course, but yeah.

Sooner of later, someone calls your bluff and it's revealed you don't have the gold in the vaults and you don't have the gold for delivery, but I wouldn't hold my breath waiting for official lies and criminality to be exposed, the efforts of the relentless crew of heroes at notwithstanding.

July 18, 2013 | Unregistered Commenterfallingman

When that bluff is called they will settle in cash as per ABN AMBRO bank or introduce a 7 year delivery period as they have done for the return of Germany's gold - they will wriggle like crazy.....

July 18, 2013 | Registered CommenterGold Prices

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