dragos, I also heard some people say "there's too many people right now". I don't know who has it right, but maybe there's just more gold because there are more people.
The Laptop, My pleasure. You are also right as far as the implication of Chinese and Indian growing wealthy class concerns. One could also add Indonesia, the Philipines... In fact, one who invests in gold, speculates on the growing world GDP, a speculation that in fact is rather obvious to make since a world economy with no major conflicts and with growing global GDP numbers, has only one way to go: up. Of course, that is equally an argument for investing in equities and indeed, that's the reason why I'm still highly bullish the RIGHT equities, which, as an aside, isn't so easy to define. To figure out what are the right equities, one needs to make more homework (or have more luck) than to buy gold.
Petrarch, You completely miss the point. Robert Blumen ("What is key for the price formation of Gold ?") already pointed out how the gold price behaves and how little mining supply has to do with that: http://bit.ly/WnAFzp So your intervention really does not tell anything new. I won't answer for the author of this SA article, but I might think he's well aware of the reality of gold price formation as has been defined by Blumen and others too on this SA forum, myself included.
What is important to understand though, is the psychological effect of gold mining "shortage/oversupply" (in reality: "decrease/increase") on price formation. Although gold mining only accounts for 1.3% of total potential gold supply, it's psychological relevance indeed is VERY important. I explain myself. If people know there's going to be a decline of mining supply, they see this as a strong argument to start hoarding. If on the other hand people acknowledge there's an increase of mining supply, they see this as a strong reason to sell. In the first case the gold price rises accordingly, in the second case, the price goes down. I give you one example: when the news brings out rumor of a new workers' strike on the brink of formation in SA gold mines, the gold price inevitably shoots higher. Although the 7% South African share in gold mining supply is very small and 7% of 1.3% is even smaller, the psychological effect is nonetheless enormous.
That's why I call this article of the Laptop Investor very sound and relevant and your remarks not to the point.
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
IT, I have a funny feeling that the organized suppression of the gold price that started in April didn't work out as some people had wanted. They probably had expected that gold bugs would get disgusted by so heavy losses and never buy an oz of gold ever again. The opposite happened: gold bugs saw this as a once in a lifetime buying opportunity. It's as if you go to the mall and they tell you they sell Apple's latest i-phone for half the price. At that point you don't ask questions, you simply buy. You and I know that's a perfectly sound reaction, but apparently not everyone is of the same opinion. Don't expect the media to give too much attention to this price hike: they mostly only report downturns in the gold price.
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
Yes, indeed, IT, you can put it that way. I'd like to add that of course the East takes more than a nibble too. I hardly posted my remark about how hazardous it is to short gold at these levels, and up went the price: +2.5%. The treathening global SA miner strike might probably added to the panic. The mechanism becomes very clear now: the gold price gets crushed down by Soros and god knows who else > the miners have to lower their expenses to cope with these price cuts > the miners cut wages or want their workers to work longer > the workers go on strike.
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
IT, There sure is a demand glut at physical level, but I wouldn't call it a shortage of gold. The trouble the market now has to meet the demand of Krugers and all sorts of other coins, is simply a problem of logistics: how to mint a 100 tonnes of bullion gold into small coins the fastest possible ? That takes time, you now. It doesn't mean there is a shortage of gold, it simply means there is a shortage of a specific form of gold. Having said that, the lower the price goes, the less people you'll find willing to depart of their gold and the more people willing to buy it. That's why I think those who go short gold now (nearly 75,000 short contracts on Comex) at these levels, will face a cold shower: http://bloom.bg/115y1eX
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
Hebba, You are right, but that's the never ending story of most companies: they are always in need of more money. Even sound companies like Berkshire Hathaway emit bonds to attract more money when conditions seem all right. The question indeed is whether the market will eventually purvey the surplus of money the miners ask. I have a feeling that won't be a problem for the moment because most investors still argue that the fundamentals for a higher gold price haven't changed. It's the gold market who's got it wrong, they say, and it'll only take a couple of months before the gold price goes up again. And so the investors will be eagerly willing to keep on subsidizing the miners for at least these couple of months, maybe longer.
Most gold mines (even Australian ones cfr. the higher levy on mining) operate under political risk: they cause a lot of pollution and generate a lot of money which is why they arise interest from local politicians. They have a love-hatred relation with gold mines. Mongolia and Egypt are no exceptions. Right now, I see more political risk in South Africa tough because of the workers' treath to go on a general strike. Gold miners take these risks into account when starting their operations: it adds to the general costs. But one can't deny that global gold mining supply still increases.
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
Goldt, "and keep the highest grades and least cost to produce portions of their mines for when gold is at lower price"
Well, let me tell you, not ONE single mine on earth still has high grades (>100g/t) at it's disposal anymore. All mines operate at costs way higher than they were in the 20th cent. Higher wages, higher energy costs, higher taxes, higher environmental concerns, lower grades, they all induce higher production costs. Moreover, large part of nowadays gold production comes as an aside-product for nickel, copper, silver, platinum ... mines. Besides, the cheapest way of "producing" is hedging and since that hasn't done the mines too much good in the past, hedging almost disappeared: eventual costs always appeared to be higher than forecast.
So different grades in one mine are not the issue. The issue is, what is the overall equilibrium ? At what gold price do the mines globally start to make profit ? The theory says that a price higher than that equilibrium will keep them running. A price lower than that equilibrium will see mines go bust and close down. So, again in theory, a price lower than $1,300/oz (or whatever that overall equilibrium is, I have no idea) will make the curve on a graph of gold mining production go south and a price above that figure will show us the curve of gold mining production go north. But between theory and practice there are lots of unknowns: how much capital can mines still attract to keep on running, notwithstanding current account deficits ? How will costs evolve (wages, electricity, taxes...) ? What are the chances of the copper, nickel, silver, platinum markets ? Therefore, I'm inclined to support the author's stance that this lower gold price should lower production.... OVERTIME. I added the last word "overtime" because I know from experience that miners can be a tough and stubborn lot who keep on mining till their last $ AND banking credit AND aunt's loan has been spent.
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
Hebba, You are right, but that might take some time. Lots of new operations just started mining with brand nex investing money, like in Mongolia, Egypt: http://bit.ly/y5BxVv http://bit.ly/10aEo5b
More on Philly Fed: The big miss is another in a line of weak data points this morning. The decline was led by a steep drop in shipments to -8.5 from +9.1. Also notable is a big jump in inventories to +4.1 from -22.2. Employment worsened to -8.7 from -6.7. The percentage of firms reporting employment decreases was 22% vs. those reporting increases at 14% - a number sure to cross the desk of the FOMC doves this morning. Treasurys have had a tough May, but they're bouncing today, TLT +1.2%. The leveraged bear ETF: TBT -2.4%. Stocks give up early gains (DIA -0.2%). [View news story]
These figures apparently don't impress the stock market: DJI -0.11% and Nasdaq +0.11%. We all know it ain't right, but what can we do except keep on dancing ?
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
Although what Hebba says holds a lot of truth, I see no downturn in mining supply. Q1 2013 mining figures that came out this morning on WGC show instead a 4% increase ! The thing is, big miners can be operating at high costs (+$1,300/oz), but what about small artisan miners ? Their share in overall production is increasing year by year and they might be working at -$1,000/oz. And judging from the staggering amount of shorting contracts, a lot of investors think the same. Shorting gold is in a bubble I'd say.
4 Scary Charts Warning Of The Next Financial Crisis [View article]
Looking at graph n°2, I see Japan's Total Expenditures dramatically coming down while Tax Revenues are more or less stable. Where is the problem then ?
Precious Metals Defy Logic [View article]
I referred to the present.
Where are the casualties you know of ?
Precious Metals Defy Logic [View article]
I also heard some people say "there's too many people right now".
I don't know who has it right, but maybe there's just more gold because there are more people.
Precious Metals Defy Logic [View article]
Everything depends on how you define "a long long time".
Precious Metals Defy Logic [View article]
My pleasure.
You are also right as far as the implication of Chinese and Indian growing wealthy class concerns.
One could also add Indonesia, the Philipines...
In fact, one who invests in gold, speculates on the growing world GDP, a speculation that in fact is rather obvious to make since a world economy with no major conflicts and with growing global GDP numbers, has only one way to go: up.
Of course, that is equally an argument for investing in equities and indeed, that's the reason why I'm still highly bullish the RIGHT equities, which, as an aside, isn't so easy to define. To figure out what are the right equities, one needs to make more homework (or have more luck) than to buy gold.
Precious Metals Defy Logic [View article]
You completely miss the point.
Robert Blumen ("What is key for the price formation of Gold ?") already pointed out how the gold price behaves and how little mining supply has to do with that:
http://bit.ly/WnAFzp
So your intervention really does not tell anything new.
I won't answer for the author of this SA article, but I might think he's well aware of the reality of gold price formation as has been defined by Blumen and others too on this SA forum, myself included.
What is important to understand though, is the psychological effect of gold mining "shortage/oversupply" (in reality: "decrease/increase") on price formation.
Although gold mining only accounts for 1.3% of total potential gold supply, it's psychological relevance indeed is VERY important. I explain myself.
If people know there's going to be a decline of mining supply, they see this as a strong argument to start hoarding. If on the other hand people acknowledge there's an increase of mining supply, they see this as a strong reason to sell.
In the first case the gold price rises accordingly, in the second case, the price goes down.
I give you one example: when the news brings out rumor of a new workers' strike on the brink of formation in SA gold mines, the gold price inevitably shoots higher. Although the 7% South African share in gold mining supply is very small and 7% of 1.3% is even smaller, the psychological effect is nonetheless enormous.
That's why I call this article of the Laptop Investor very sound and relevant and your remarks not to the point.
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
I have a funny feeling that the organized suppression of the gold price that started in April didn't work out as some people had wanted. They probably had expected that gold bugs would get disgusted by so heavy losses and never buy an oz of gold ever again.
The opposite happened: gold bugs saw this as a once in a lifetime buying opportunity. It's as if you go to the mall and they tell you they sell Apple's latest i-phone for half the price. At that point you don't ask questions, you simply buy.
You and I know that's a perfectly sound reaction, but apparently not everyone is of the same opinion.
Don't expect the media to give too much attention to this price hike: they mostly only report downturns in the gold price.
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
I hardly posted my remark about how hazardous it is to short gold at these levels, and up went the price: +2.5%. The treathening global SA miner strike might probably added to the panic.
The mechanism becomes very clear now: the gold price gets crushed down by Soros and god knows who else > the miners have to lower their expenses to cope with these price cuts > the miners cut wages or want their workers to work longer > the workers go on strike.
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
There sure is a demand glut at physical level, but I wouldn't call it a shortage of gold. The trouble the market now has to meet the demand of Krugers and all sorts of other coins, is simply a problem of logistics: how to mint a 100 tonnes of bullion gold into small coins the fastest possible ? That takes time, you now.
It doesn't mean there is a shortage of gold, it simply means there is a shortage of a specific form of gold.
Having said that, the lower the price goes, the less people you'll find willing to depart of their gold and the more people willing to buy it. That's why I think those who go short gold now (nearly 75,000 short contracts on Comex) at these levels, will face a cold shower:
http://bloom.bg/115y1eX
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
You are right, but that's the never ending story of most companies: they are always in need of more money. Even sound companies like Berkshire Hathaway emit bonds to attract more money when conditions seem all right.
The question indeed is whether the market will eventually purvey the surplus of money the miners ask. I have a feeling that won't be a problem for the moment because most investors still argue that the fundamentals for a higher gold price haven't changed.
It's the gold market who's got it wrong, they say, and it'll only take a couple of months before the gold price goes up again.
And so the investors will be eagerly willing to keep on subsidizing the miners for at least these couple of months, maybe longer.
Most gold mines (even Australian ones cfr. the higher levy on mining) operate under political risk: they cause a lot of pollution and generate a lot of money which is why they arise interest from local politicians. They have a love-hatred relation with gold mines. Mongolia and Egypt are no exceptions. Right now, I see more political risk in South Africa tough because of the workers' treath to go on a general strike.
Gold miners take these risks into account when starting their operations: it adds to the general costs. But one can't deny that global gold mining supply still increases.
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
"and keep the highest grades and least cost to produce portions of their mines for when gold is at lower price"
Well, let me tell you, not ONE single mine on earth still has high grades (>100g/t) at it's disposal anymore. All mines operate at costs way higher than they were in the 20th cent.
Higher wages, higher energy costs, higher taxes, higher environmental concerns, lower grades, they all induce higher production costs.
Moreover, large part of nowadays gold production comes as an aside-product for nickel, copper, silver, platinum ... mines.
Besides, the cheapest way of "producing" is hedging and since that hasn't done the mines too much good in the past, hedging almost disappeared: eventual costs always appeared to be higher than forecast.
So different grades in one mine are not the issue.
The issue is, what is the overall equilibrium ? At what gold price do the mines globally start to make profit ?
The theory says that a price higher than that equilibrium will keep them running. A price lower than that equilibrium will see mines go bust and close down.
So, again in theory, a price lower than $1,300/oz (or whatever that overall equilibrium is, I have no idea) will make the curve on a graph of gold mining production go south and a price above that figure will show us the curve of gold mining production go north.
But between theory and practice there are lots of unknowns: how much capital can mines still attract to keep on running, notwithstanding current account deficits ? How will costs evolve (wages, electricity, taxes...) ? What are the chances of the copper, nickel, silver, platinum markets ?
Therefore, I'm inclined to support the author's stance that this lower gold price should lower production.... OVERTIME.
I added the last word "overtime" because I know from experience that miners can be a tough and stubborn lot who keep on mining till their last $ AND banking credit AND aunt's loan has been spent.
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
You are right, but that might take some time. Lots of new operations just started mining with brand nex investing money, like in Mongolia, Egypt:
http://bit.ly/y5BxVv
http://bit.ly/10aEo5b
More on Philly Fed: The big miss is another in a line of weak data points this morning. The decline was led by a steep drop in shipments to -8.5 from +9.1. Also notable is a big jump in inventories to +4.1 from -22.2. Employment worsened to -8.7 from -6.7. The percentage of firms reporting employment decreases was 22% vs. those reporting increases at 14% - a number sure to cross the desk of the FOMC doves this morning. Treasurys have had a tough May, but they're bouncing today, TLT +1.2%. The leveraged bear ETF: TBT -2.4%. Stocks give up early gains (DIA -0.2%). [View news story]
We all know it ain't right, but what can we do except keep on dancing ?
The Future For Gold Supply Looks Grim: An Opportunity For Gold Investors [View article]
The thing is, big miners can be operating at high costs (+$1,300/oz), but what about small artisan miners ? Their share in overall production is increasing year by year and they might be working at -$1,000/oz.
And judging from the staggering amount of shorting contracts, a lot of investors think the same. Shorting gold is in a bubble I'd say.
4 Scary Charts Warning Of The Next Financial Crisis [View article]
Where is the problem then ?
Precious Metal Royalties: The New Landscape [View article]