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Demand
Global gold demand was 964t in Q2 2014, significantly
reduced from the record high in Q2 2013.
ETF outflows slowed sharply.
Central Banks continued to buy gold for the 14th
consecutive quarter in Q2 2014. CB’s purchased 118t in Q2 2014 up 28% over Q2
2013. The announcement of a fourth CBGA in the second quarter also reiterated
that sales will not be forthcoming from some of the largest holders.
Jewellery demand weakened year-on-year, but the broad,
5-year uptrend remains intact. Jewellery accounted for 53% of gold’s global
demand and is by far and away the anchor of gold’s market.
World Gold Council
Supply
China is the largest producer in the world, accounting
for around 14 per cent of total production. East Asia as a whole
produces 21 per cent of the total newly-mined gold. Latin America
produces around 18 per cent of the total, with North America supplying
around 15 per cent.
Around 19 per cent of production comes from Africa
and 5 per cent from Central Asia and Eastern Europe.
Recycling accounts for around one third of the total
supply of gold.
Thanks to the World Gold Council you now know where gold
comes from, whose buying it and what they use if for.
Deeper into the #’s
Gold comes from three sources:
- Central Banks - sales stopped and are
staying stopped.
- Recycling – mostly flat in 2014.
- Mining
Global gold demand across all sectors in 2013 was
4,065.60t.
The top 2013 six gold producing countries - China 420t,
Australia 227t, U.S. 226t, Russia 220t, Puru 150t, South Africa 145t and
Canada 120t - together produced 1,653.00t.
Other top gold producing countries include Mexico 100t,
Ghana 85t, Brazil 75t, Indonesia 60t and Chili 55t.
According to GFMS estimates total gold mine supply
reached 2,982 tonnes in 2013, up 4.1% from 2012.
High grading & refocusing
Two mostly unrecognized influences are at work in the
global gold market, unsustainable production levels and a shifting of demand
focus.
Many miners are processing greater quantities of ore to
maintain revenue and contain costs at today’s lower gold prices.
It’s also very possible some companies are focused on
solely mining the higher grade portions of their mines. The result is higher
production and lower costs over a short term, but it is not sustainable and
means a much higher gold price is needed to economically mine the lower
grades left.
The focus of the gold industry is shifting east.
The key driver of gold’s price over most of the last
decade was institutional investors buying gold bullion through
exchange-traded funds (ETF). That changed in 2013 with investors dumping 800t
or 31m ozs.
On the other side of the trade was an enormous physical,
almost insatiable, gold demand coming from Asia. According to GFMS China
imported unprecedented amounts of gold from the rest of the world and became
the world’s largest consumer of jewellery last year, with demand rising 30%
to 724 tonnes.
The quest for gold
Here’s a few facts from SNL Metals & Mining's 2014
edition of ‘Strategies for Gold Reserves Replacement.’
Over the past two dozen years mining companies have
discovered 1.66 billion ounces of gold in 217 major gold discoveries. That’s
a lot of gold!
But it wasn’t enough - there were 1.84 billion ounces
produced over the same period. That’s a shortfall of 180 million ounces of
gold for reserve replacement over the 24 year period or a shortfall of 7.5m
ozs a year.
The amount of gold discovered and the number of major
discoveries has been trending downward - from 1.1 billion ounces in 124
deposits discovered during the 1990s to 605 million ounces in 93 deposits
discovered since 2000.
“The amount of potential production from these major
discoveries is particularly concerning when looking at the discoveries made
in the past 15 years. Assuming a 75% rate for converting resources to
economic reserves and a 90% recovery rate during ore processing, the 674
million ounces of gold discovered since 1999 could eventually replace just
50% of the gold produced during the same period.
However, considering that only a third of the
discovered gold has been upgraded to reserves or has already been produced,
and that many of these deposits face significant political, environmental or
economic hurdles, the amount of gold becoming available for production in the
near term is certainly much less.
Between 1985 and 1995, 27 mines with confirmed
discovery dates began production an average of eight years from the time of
discovery. The time from discovery to production increased to 11 years for 57
new mines between 1996 and 2005, and to 18 years for 111 new mines between
2006 and 2013.
The length of time from discovery to production is
expected to continue trending higher: 63 projects now in the pipeline and
scheduled to begin production between 2014 and 2019 are expected to take a
weighted-average 19.5 years from the date of discovery to first production.” Kevin Murphy, mining.com
Conclusion
The production of mined gold remains well below market
demand. As long as demand exceeds mined supply how can gold’s bull run be
over? Your author doesn’t believe it can be.
The best way to profit is to buy when everyone else has
sold and assets are at rock bottom prices. That would be now.
Your best bet for high returns will be to invest in
junior resource companies.
After all, they find the deposits, so they own the
world’s future mines, yeah that’s right, junior resource companies own the
gold the gold miners need to replace their reserves.
Why don’t we all ignore the endless bombardment of
economic white noise spewing from mainstream media outlets and instead
concentrate on gold's fundamental supply problems?
I’ve got a couple promising junior gold companies on my
radar screen. Do you have a few on yours?
If not, maybe you should.
Richard Mills
Richard lives with his family on a 160 acre ranch in
northern British Columbia. He invests in the resource and
biotechnology/pharmaceutical sectors and is the owner of Aheadoftheherd.com.
His articles have been published on over 400 websites, including:
WallStreetJournal, USAToday, NationalPost,
Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost,
Beforeitsnews, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews,
SGTreport, Vantagewire, Indiatimes, Ninemsn, Ibtimes, Businessweek,
HongKongHerald, Moneytalks, SeekingAlpha, BusinessInsider, Investing.com and
the Association of Mining Analysts.
Please visit www.aheadoftheherd.com
If you are interested in sponsoring Richard’s site
please contact him for more information, rick@aheadoftheherd.com
***
Legal Notice / Disclaimer
This document is not and should not be construed as an
offer to sell or the solicitation of an offer to purchase or subscribe for
any investment.
Richard Mills has based this document on information
obtained from sources he believes to be reliable but which has not been
independently verified.
Richard Mills makes no guarantee, representation or
warranty and accepts no responsibility or liability as to its accuracy or
completeness. Expressions of opinion are those of Richard Mills only and are
subject to change without notice. Richard Mills assumes no warranty,
liability or guarantee for the current relevance, correctness or completeness
of any information provided within this Report and will not be held liable
for the consequence of reliance upon any opinion or statement contained
herein or any omission.
Furthermore, I, Richard Mills, assume no liability for
any direct or indirect loss or damage or, in particular, for lost profit,
which you may incur as a result of the use and existence of the information
provided within this Report
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