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Gold supplies are not ‘running out’

|Includes:ABX, AU, GFI, SPDR Gold Trust ETF (GLD), GOLD, HMY, NEM

 ST. LOUIS (Alpha Found) — Ambrose Evans-Pritchard, writing for the UK Telegraph, knows how to craft a headline for maximum attention. He may have outdone himself this time with “Barrick shuts hedge book as world gold supply runs out”.

There is a mild clarification in the sub-header, “Global gold production is in terminal decline…”. But it’s still very sensational.

The reality is that because gold is so valuable, virtually every ounce that has been liberated from the earth has access to the market. Price determines the sources and volume of supply, and it determines the sources and volume of consumption.

Whilst newly mined gold is declining, it’s still to early too say it’s terminal. However, it is true to say that for the last decade it has been very clear that gold producers have not been finding gold in the quantities and concentrations they used to.

If gold miners cannot supply what the market demands, then scrappers and substitution will, and prices will adjust accordingly. What Evans-Pritchard’s article points to is that the supply-demand balance is shifting toward higher prices that will stimulate alternative sources to meet demand.

It’s an important change in the market compared with the 1980s and 1990s which saw gold production rocket higher on new technologies and impressive discoveries. It has been a long, dry spell for explorers since then.