Gold corrected last week but then it rose $20 Monday morning. Silver rose even more (2.2%) Monday morning to surpass $33 for the first time in a month, and platinum rose $19. Some of these gains are due to a weaker dollar, but gold’s main engine now is fear of the fiscal cliff and global tensions in the Middle East – which have caused a surge in the price of crude oil. Gold was down last week because demand in India during its Diwali festival was weaker than expected, but silver rose last week and platinum has been stronger than gold in recent months, due to falling production in South Africa resulting from mine strikes. Major dealers across the country are reporting some very large gold coin orders.
Gold Discoveries Getting More Scarce
The supply side of the gold supply/demand equation is getting squeezed because new gold discoveries are fewer and farther between. As older mines are worked out, there are fewer new mines to replace the lost supply.
Even with record spending on exploration – $8 billion last year – gold discovery rates are sliding, according to Jamie Sokalsky, chief executive officer of Barrick Gold Corp., the world’s largest producer. There were only three new gold discoveries last year, compared with 11 in 1991. None of the three most recent ones could be described as “supergiants” holding more than 20 million ounces, Sokalsky said. He predicted gold’s bull market shows no signs of weakening, but it won’t help find more gold.
“I don’t see a surge in gold production if we saw a gold price of $3,000,” Sokalsky said. “At a higher gold price, we’d still be experiencing the same challenges. I’d suggest there’d be very limited response to that higher gold price.”
“It’s getting harder to find large deposits and to get those deposits into production takes at least twice as long as it might have taken a decade ago,” Sokalsky said. “We’re not going to see new mines coming in as fast as we thought to replace old mines that are closing.”
“Getting mines permitted, dealing with the government and the communities, environmental issues, all of that takes so much longer,” said Sokalsky. “It also costs multitudes more to build a mine and to finance that.”
Global gold mine output may increase only 0.7% in 2013, the slowest pace since 2008, according to Barclays, which forecasts that total physical supply may actually shrink 0.4% next year.