The Biggest Gold Story Not Being Reported
The Biggest Gold Story Not Being Reported by Byron King, Daily Reckoning
Gold has performed exceedingly well since last Wednesday’s much-anticipated rate hike. It shot up about $25 Wednesday alone. Today it’s up another three bucks, to $1,233.
The most common argument for gold is fairly well-known. Trump’s massive new spending proposals will goose inflation, meaning a higher gold price.
But while most investors focus on the potential for increasing demand, few consider if supplies will be able to meet that demand. And if supplies can’t keep up with demand, that should lead to much higher gold prices.
After three years of drifting lower, gold prices began to recover last year. Still, despite last year’s gold price move, the world’s top 10 gold mining companies were focused more on cost cutting. The result was a decline in gold production from mines run by majors.
And Ivan Glasenberg, CEO of mining giant Glencore, says that “there are no new big mines being built in the world today.” That’s because the industry downturn between 2012 and 2015 — the Mining Zombie Apocalypse, as I like to call it — caused miners to slash exploration budgets, in essence storing up trouble for the future.
Thus, it’s worth taking note of a recent article at Mining.com by Frik Els — with whom I spent a week in the Yukon last summer.
Frik dissects a recent report by Thomson Reuters about how primary global gold output declined in 2016. Specifically, Mining.com sums up the report: “World gold mine supply fell by 22 tonnes, or 3%, year on year according to the GFMS Gold Survey, to 827 tonnes in the third quarter of 2016.
By all indications, mine supply contracted in the fourth quarter of 2016 as well.
That means 2016 was the first year of a fall in mine production since 2008.
And according to the Thomson Reuters report, there are “few new projects and expansions expected to begin producing this year, and those in the near-term pipeline are generally fairly modest in scale, hence our view that global mine supply is set to continue a multiyear downtrend in 2017.”