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Global Shortage of Physical Gold and Silver

Physical demand remains near record levels internationally with rising premiums for all bullion products and delays and shortages deepening. There are now little or no gold coins or bars (1 oz and 10 oz) available for immediate delivery throughout the world. There are no silver coins or bars available besides 1000 oz silver bars.

Investors are paying far higher premiums to secure physical bullion and they are willing to wait 6 to 8 weeks due to the unavailability of gold coins and bars and as they have no choice but to wait if they wish to take delivery of physical bullion.

This demand is being seen throughout the entire world but especially in the western world, in the Middle East and throughout the Indian subcontinent and wider Asia.

As noted yesterday, gold supply continues to fall with gold mining production worldwide failing 6% during the first-half of the year compared with the first half of 2007. Totaling just 590 tonnes between April and July, global gold mining output was the lowest since 1996 according to data from the US Geological Survey.

The Wall Street Journal reported of "phenomenal" demand in India where in just 3 weeks Indian investors bought nearly as much tonnage of gold as they did in the entire final quarter last year. In the first 3 weeks of October alone, more than 50 tonnes of gold was sold. Incredibly, during the whole of October - December quarter last year just 80 tonnes was sold.

The Journal reported that "gold sales have picked up phenomenally...following consistent steep fall in equity markets which has boosted the demand for the metal as a safe investment option.”

Demand for silver remains very robust as well internationally and in India appetite for silver bullion is extremely high as seen in the very unusual fact that silver bullion bars (1000 oz) are being airfreighted to India. Silver bullion is normally moved by sea as air freight costs for silver are very high (due to weight and volume) and this shows huge demand for silver bullion throughout the subcontinent.

Gold Investments Oct 2008

Peak Gold? - Australian Gold Production Plummets

This report from Gold Investments (June 2008).

The news this morning that the world's third-largest gold producer, Australia, saw gold production fall 7 percent over the past year, a far deeper than expected decline will give the bears pause for thought and is another positive for gold over the medium to long term.

There is increasing belief that next year's tally in Australia could be even lower given a mounting serious power problem in Western Australia after a pipeline explosion on early June cut power supplies to many of the gold mines. West Australia typically accounts for about 80 percent of the nation's gold yield each year. It will be August before gas begins to trickle back to the mines, the pipeline's operator, Apache Corp estimates.

Last week saw further evidence of the likelihood of peak gold production with the plummet in South African gold production.

Of the world’s three biggest gold producers (China, South Africa and Australia), only China has managed to increase gold production in recent years and this Chinese gold is used in China to meet the rapidly growing demand for gold as jewellery and as an investment in China. Thus Chinese gold is not exported into the international market which remains the supply/demand balance in gold is becoming increasingly tight and likely to lead to markedly higher prices.