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!) andmay 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.
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
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.
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.
I like gold because it’s a risk-reducing, portfolio-diversifying asset. It’s also been a strong-performing asset over the past decade – up nearly 400%. What’s more, it’s been reliable. In 2008, when the major U.S. indices plummeted 37% (and more into early 2009), gold returned nearly 6%. In addition to being an exceptional investment, however, gold has also been an exceptional investment within a portfolio context. That is, it has provided return while reducing portfolio risk. Gold has, in essence, been a free lunch. Words: 490
Some say that the gold price rises and falls, but they are grabbing the wrong end of the stick. It is the purchasing power of national currencies that rise and fall. Here is an analogy to make this point clear. When standing in a boat and looking at the shore, it is the boat (currencies) – and not the land (gold) – that is bobbing up and down. [Let me explain the value of gold further.] Words: 631
This is not a typical bull market. Gold is not rising in value, but instead, currencies are losing purchasing power against gold and, therefore, gold can rise as high as currencies can fall. Since currencies are falling because of increasing debt, gold can rise as high as government debt can grow. Based on official estimates, America’s debt is projected to reach $23 trillion in 2015 and, if its correlation with the price of gold remains the same, the indicated gold price would be $2,600 per ounce. However, if history is any example, it’s a safe bet that government expenditure estimates will be greatly exceeded, and [this] rising debt will cause the price of gold to rise to $10,000…over the next five years. (Let me explain further.] Words: 1767
You have no doubt read countless articles on the price of gold costing “x dollars per ounce” and possibly own a gold ring or some other piece of gold jewellery but do you really understand exactly what you are buying? What’s the difference between 1 troy ounce of gold and 1 (regular) ounce? What’s the difference between 18 and 10 karat gold? Let me explain. Words: 637
Gold and Silver are not an investment! Let me repeat that. Gold and silver are not an investment! Gold and silver are (excuse the pun) the most “solid” form of money you can possess. Yes, these two precious metals are money!…Don’t fear owning gold my friends. Fear not owning gold and silver, especially if you are a saver. [Let me explain.] Words: 795
It would seem that there is a considerable lack of understanding about what the term “safe haven” actually means when it comes to gold. Let me explain just what it means – and does not mean. Words: 740
Comments I have made that “when this [financial crisis] finally ends the big winners are apt to be the ones who have lost the least purchasing power. Keeping score in nominal dollars is likely to be meaningless. Gold tends to hold its purchasing power regardless of what happens to fiat currency.” have prompted questions about a) how to achieve such purchasing power with physical gold when this stage is reached, b) how to go about buying things with gold coins and c) how gold would be utilized under the assumption that a barter system would develop when dollars become worthless. [Let me explain.] Words: 700
Do you own enough gold and silver for what lies ahead? If 10% of your total investable assets (i.e., excluding equity in your primary residence) aren’t held in various forms of gold and silver, we…think your portfolio is at risk. Here’s why. Words: 625
To fully understand gold’s role in an investment portfolio, we need to adopt a new mindset, a gold mindset which is, simply put: gold is not a bad investment, and gold is not a good investment. Gold is not an investment at all – gold is money.
In our travels to the Middle East, the Far East and South and Central America [we have found that] most people in those parts of the world see gold as the protector of wealth [as opposed to] in the West where it is viewed as a commodity for speculation… [That shouldn’t be the case. Let me tell you why.] Words: 2159
Have you ever wondered what money really is [and why we need to own some gold as a result]? You’ll notice that everyone you read has a strong opinion , but who’s right? [Let look at the situation and see if we can come to an answer that we both can agree on.] Words: 3086
I was taught years ago that “gold is not about price… gold is about value.” Be measured, be balanced and don’t make more of it than it is. Gold is just a tool, an anchor to sound money; to value. [Let me explain.] Words: 1120
There is such a “fear of gold” amongst most people that it must be due to statist indoctrination and propaganda because it makes no rational sense to have such a fear of such a time tested and true store of wealth. After all, we are talking about time tested and true money – the only money that has lasted for thousands of years and is still fully accepted worldwide as a store of wealth….What would you rather hold “for eternity” gold [or] US dollars [which are nothing more than] a paper debt obligation of a bankrupt nation state? Words: 450
Out of the 7,500 separate mutual funds available, and with 22,000 shares classes to choose from, only 1 fund – just ONE fund – actually managed to achieve a greater percentage return than gold bullion since the alarm bells rang out at the turn of 2007! [That being said, are you still one of the 99% of investors who, for whatever reason (are you foolishly listening to the “advice” provided by your stock broker/securities salesman going under the guise of a financial “advisor”), is still without any physical gold or silver?] Words: 395
The traditional view of portfolio management is that three asset classes, stocks, bonds and cash, are sufficient to achieve diversification. This view is, quite simply, wrong because over the past 10 years gold, silver and platinum have singularly outperformed virtually all major widely accepted investment indexes. Precious metals should be considered an independent asset class and an allocation to precious metals, as the most uncorrelated asset group, is essential for proper portfolio diversification. [Let me explain.] Words: 2137
It is no longer a matter of whether or not you should buy gold and/or silver but, rather, which type of investment(s) and how much. You don’t need a lot but you do need some – and here’s a primer on just what type of investment vehicles are available and recommendations on just how much you should buy. Words: 1086
Asset allocation is one of the most crucial aspects of building a diversified and sustainable portfolio that not only preserves and grows wealth, but also weathers the twists and turns that ever-changing market conditions can throw at it. However, while the average [financial] advisor or investor spends a great deal of time carefully analyzing and picking the right stocks or sectors, the basic and primary task of asset allocation is often overlooked. [According to research by both Wainwright Economics and Ibbotson Associates and the current Dow:gold ratio, allocating a portion of one’s portfolio to gold and/or silver and/or platinum is imperative to protect and grow one’s financial assets. Let me explain.] Words: 1060
We are reading a lot of hype these days about gold and the necessity to own it but only about 2% of ‘investors’ actually have gold in their portfolios and those that have done so have insufficient quantities to offset the future impact of inflation and to maximize their portfolio returns. New research, however, has determined a specific percentage to accomplish such objectives. Words: 1063