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Supply Issues Offer Additional Underpinnings to Goldby Peter A. Grant
Oct 12, AM 
Gold is back on the defensive, unwinding much of yesterday's gains ahead of the weekend. However, downside potential is thought to be limited by continued robust demand for the precious metal as a hedge against the global debasement of fiat currencies, as well as ongoing central bank demand for the purposes of reserve diversification.Everyone is probably pretty well aware of these macro drivers on the demand side, but it's also worth noting some significant supply side considerations. Fist of all, and this is a topic we've discussed on numerous occasions, none of the mining supply from China is making it to the open market. Essentially, every ounce of gold mined in the world's largest producer is going right to their insatiable reserve building effort. Secondly, the fourth largest producer in the world is also in full-on accumulation mode. According to the World Gold Council Russia has more than doubled its gold reserves in the last five years and now holds the fifth largest stockpile. It is likely that much of their mining output is going right to reserves as well. More recently, labor unrest in South Africa has negatively impacted production in the fifth largest producing nation. In a Reuters article yesterday, it was reported that strikes were costing AngloGold 32,000 ounces of gold each week, while Gold Fields is losing 2,300 ounces a day at the two mines affected. So while supply issues often get short-shrift in the financial press, it's important to realize that they too provide significant underpinnings to this market. Simple supply and demand economics, strong demand relative to available supply, suggest that the long-term secular bull market remains dominant and that short-term corrective activity should continue to be limited and short-lived. Peter Grant is USAGOLD's resident economist and a well-known analyst globally in the forex and precious metals markets. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.
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