Monday, February 25, 2013

They are not making it any more!

According to the World Gold Council the supply of gold in 2012 was 4,453.3 tonnes which was 1.4% less than in 2011.  The decline is attributed to lower recycling.  It seems that the we-buy-gold stores on every other corner are seeing less business.  
World Gold Council - demand and supply in 2012

The declining gold supply also shows that mining companies have not been increasing output.  As gold and silver prices have increased over the last 5-10 years, mining companies increased investment and more of their reserves became profitable.  One would expect these investments and newly profitable reserves to create growth in supply.  Mining is a long investment cycle business.  Are the investments going to pay off with higher production in the coming years?  Are old reserves being depleted as quickly as new reserves are being added?

The old adage about land being a good investment because "they ain't making it any more" may be more apropos for gold and silver.  I recently drove across much of Texas and New Mexico and saw a lot of land available.

More from the Kinross Corporation's 2012 MD&A

Gold Supply and Demand Fundamentals
Source: GFMS Gold Survey 2012
Total gold supply decreased a modest 0.7% in 2012 relative to 2011, with global gold mine production increasing 0.2% and recycled gold decreasing 1.6%. Mine production and recycled gold have been the dominant sources of gold supply, and in 2012 they represented approximately 63% and 37% of total supply, respectively.

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