Gold and silver demand is swamping
supply as prices fall. Or so the bug-o-sphere claims...
The MAINSTREAM media...like all bank analysts and big-money fund managers...has become
almost universally bearish on gold and silver investing.
Maybe. The bearish chorus might of course
prove self-fulfilling – and drive prices still lower – like it did in the
five years before the bull market began at the turn of the millennium.
But for private investors trying to spot
the difference, there's another group-think problem...this time outside of
the mainstream.
Because the bug-o-sphere has got it into
its head that demand is overwhelming supply – even as prices have dropped –
and a big shortage of metal is building in world markets. Especially in
silver.
The big UK and European retailers, for
instance, today have plenty of silver for sale...everything from 1-oz
Britannia coins (if you buy 100 or more, you'll pay 31% over buying London silver on BullionVault)...to
big 5-kilo bars (costing German savers 22% more than Zurich silver).
As for the United States...source of 40%
of global demand for silver coins...Silver American Eagles are now marked
'Back in Stock' at major retailers too. That includes 20-coin tubes of 2015
vintage (costing 32% more than buying Toronto silver bullion at live wholesale prices)...and the big 500-coin monster boxes (some 23% above
Singapore-vaulted silver in Euros).
Note also that last month's
bargain-hunting came thanks to the price drop, not in spite of it. The response
was much smaller than in 2013. Much smaller. And some other private investors
sold metal last month as well.
Now that we're into August, trading has
slowed markedly, as it always does. This summer's lull may feel much quieter
than usual too, coming as it does after the strongest growth in BullionVault
users' gold holdings for 3 years.
Still, if you're thinking about going against the crowd –
and quietly making a purchase amid the deafening chorus of bearish opinion –
the current situation should appeal.
Lots of metal...at low prices...makes a far better time to
buy than when supply does become tight...and prices are high.
Just remember that, for the time being, you should check
claims of a surge in demand here, here or here before swallowing the idea of anything like a
shortage developing.
And if anyone says prices should be stronger because
supply is down, also get them to check their data again – or simply try
looking for a first time.
But running a giant gold mine isn't like turning a tap on
or off. Shutting production carries costs of its own – a fact currently delaying any 'wave of closures'. Lower gold prices also
mean miners need to dig up more ounces to earn the same income and service their big debts.
Fact is, global gold-mining output hit a new record in
2014...fuelled by the huge exploration spending and over-investment of the
earlier price peak. Prices last year, you may recall with a wince, averaged
some 25% below the peak year of 2012. Yet world gold-mine production stood
almost 10% higher.
"Two years after the price peak," says the
latest Gold Survey Update from consultancy Thomson Reuters GFMS,
"2014 saw the gold mining industry’s output hit fresh record
highs.
Now, at last, exploration has "slowed
appreciably," GFMS adds, and project spending has been
"aggressively cut by producers seeking to manage costs."
Even so, their analysts...pretty much agreeing with every
other professional analyst...now expect that "mine supply will rise this
year, but by less than 1%."
Output last plateaued at record highs in 1999-2001, and
then began to ease back. That marked the last bear market's low point in
prices, too.
Maybe that was coincidence. But the big bull market of
2001-2011 certainly didn't begin with a global shortage of precious metals
for investment.
