MK note: We talk a lot about the disconnect between the paper pricing of gold and silver on the commodities exchanges and the demand for physical metal. We just had another example of that in November. As the price dropped, investors loaded up and they continue to load up – 2016’s best month and the second best over the last three years. Premiums on gold and silver American Eagles are rising as we go into year end. We just had another premium increase on gold Eagles yesterday.
In addition, to the day-to-day problem of bullion coin pricing, there is an additional, even deeper, problem and that is the long-term viability of the mining industry with respect to production. In a recent Financial Times article, Mark Bristow of the globally important Randgold mine operator, says that supply shortages are “inevitable unless some major discoveries of large, high grade ore bodies are suddenly made which frankly seems a remote possibility.” He says, “for the first time in history, gold supply into the future is under enormous pressure.”
This is something for the long-term gold investor to seriously contemplate. It is not a small thing and is not something that is going to miraculously resolve itself at some turn down the road. When you blend into the analysis, that the gaps between production and consumption need to somehow be made-up from above-ground sources, it adds even more question marks for bullion investors. Central banks are net buyers of gold at this juncture and two of the largest producers, China (#1) and Russia (#3), nationalize their production in a purposeful attempt, like all gold owners, to diversify from paper currencies.
Someday the disconnect is going to resolve itself and when it does the old saying “he who owns the gold makes the rules” is going to ring truer than ever.
