You hear a lot about central banks and gold reserves these days.
Back in February, Germany decided to start repatriating some of its U.S.- and Paris-held gold. And in March, Switzerland announced plans to vote to do the same, as well as to stop selling its gold reserves.
Moves like these aren’t necessarily out-of-the-ordinary. After all, if you’re a gold buyer, it’s generally not a good idea to buy and hold it sight unseen.
But many can’t help but wonder whether Germany, Switzerland and potentially other countries doubt perhaps not the purity of the gold bars held in their name, but rather their existence.
While we expect their gold is ready for the taking, it does make you wonder why, in Germany’s case, it will take seven years for the wealth transfer to be complete.
Whatever the reasoning for the timeline, it’s a lesson to us all that the companies storing and selling your bullion should be able to produce your gold upon request.
But let’s suppose the bullion isn’t where it’s supposed to be … and the governments have to go and buy gold on the open market. Will there be enough available?
Well, there’s plenty in the ground. So that may depend on whether several miners can go forward with their plans to get it out. And unfortunately for some big gold projects, miners are finding themselves between a (gold) rock and a hard place …
Last week, Atna Resources (ATNAF) announced that low gold prices have “temporarily downsized” the ramp-up of underground mining operations at its Pinson Mine near Winnemucca, Nevada. Atna’s stock was punished mercilessly.
Pinson was expected to yield 50,000 to 57,000 gold ounces this year. Atna had hoped to increase that production to as much as 200,000 gold ounces annually.
Nope. Not gonna happen. At least, not at these prices.
But the Pinson Mine is small potatoes, right?
On Monday, Mexico’s Minera Frisco (MFRVF), owned by billionaire Carlos Slim, said that production at its gold and silver mine El Coronel was suspended due to “illegal” worker action.
El Coronel produced 42,211 ounces of gold and 4,234 ounces of silver in the first quarter of 2013, and was planning on ramping up production.
A production ramp-up? Nope, not gonna happen now.
But that’s still small potatoes, right?
On Friday, Roque Benavides, chief executive of mining company Buenaventura, talked to Reuters about Conga, the monster, $4.8 billion Peruvian gold project that is being developed by Newmont Mining (NEM). Buenaventura is junior partner on the project.
Protests flared up at Conga again last week. And these aren’t placard-holding hippies singing “Kumbaya.” People have died in clashes with security forces at the Conga project.
The project was suspended in November 2011 at the request of Peru’s central government, after increased protests in Cajamarca by anti-mining activists. Benavides says that those protests, if they continue, could mean the end of the project.
Conga could have an average annual output of 580,000 to 680,000 ounces of gold and 155 million to 235 million pounds of copper during its first five years.
Now THAT’S big potatoes.
On Monday, an Indonesian government official announced that Grasberg, an Indonesian copper mine owned by Freeport-McMoRan Copper and Gold (FCX), will not be able to resume output for three months until a probe into a deadly tunnel collapse is completed.
Grasberg is known as a copper mine — the third-largest in the world, in fact — but it’s also the BIGGEST gold-producing mine in the world, averaging more than 1 million ounces of gold production each year for the past three years.
That’s HUGE potatoes!
Should We Start to Worry
About Gold Supply Now?
The word on the street is that it’s getting tougher and tougher to buy physical gold.
Maybe that’s why people in Singapore were paying a premium of $7 per ounce for physical gold last week — a new record. And if you want to buy physical gold in Singapore in June — too bad! Orders put in now won’t be filled until July.
- Maybe that’s why the Indian government just raised the import tariff on gold — AGAIN — on Sunday, in desperate bid to clamp down on consumer demand for the yellow metal. And this is happening during an economic slowdown! What’s going to happen when India’s economy starts firing on all cylinders again?
- Maybe that’s why sales of physical gold are hitting “astronomical” levels in Dubai. Expat Indians are rushing to buy gold in Dubai and ship it home, perhaps in a bid to get around India’s onerous new gold-import restrictions. Dubai merchants report that their sales have shot up by 400% after the recent price plunge.
- Maybe that’s also why sales of American Eagle gold bullion coins by the U.S. Mint — despite dropping in May from April — are still on track to set a new annual sales record.
The buyers are there. The suppliers are getting thinned out. The question of the day may soon become: “Got physical gold?”
What’s your answer going to be?
Got Gold (Miners)?
Miners look good too, of course — at least, the good ones do. That’s why I recommended two new gold miners to my Junior Resource Millionaire subscribers on Friday. Are those positions up? Yup! Are they likely to go higher? Hey, nothing’s certain in this world, but I think the odds favor this trade.
And let’s look at the Market Vectors Gold Miners ETF (GDX), a basket of leading gold miners.
Despite recent bad news from Newmont and Barrick Gold (ABX), which is having its own troubles with a multibillion-dollar project, the gold miners seem to be breaking out. Maybe it’s because the gold they do own is suddenly looking a lot more valuable.
The real test will come at the 50-day moving average. Good luck to all.
If you’re doing this on your own, do your own due diligence.
All the best,
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