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Last week we discussed gold and the unprecedented demand for the yellow stuff in Part I. Today we will follow up with a few more tidbits.
As we mentioned last week, the demand for gold has skyrocketed 38% in the first quarter of 2009, a truly staggering number. With the emerging countries of India, China, Brazil and Russia concerned about the fiscal health of the dollar, gold is poised to be the place to be over the next few years.
Here is the curious thing: demand for gold has exploded but get this, goldmine output is at its lowest in 12 years!
The GFMS consultancy is a London-based research group that works with gold mining firms and is a data source for the World Gold Council. According to them, in 2008, output dropped to 2,416 metric tonnes from 2,478 metric tonnes in 2007 and they anticipate that it will fall again to 2,302 metric tonnes. The chart below shows a steady decline in production since 2003.
 Must be from lower prices, right? Not so. Since 2001 gold has shot from $271 an ounce to over $1,000, more than triple in eight years! |
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Experts tell us that almost 100 million ounces need to be added to reserves of the gold industry each year. With prices rising, demand soaring and supplies falling, we are very likely to run into a classic squeeze that sends prices exploding to ever increasing heights.
We are being set up for a disaster and the pieces of the puzzle are rapidly falling in place. The U.S. economy is in shambles with housing and unemployment leading the charge for continuing malaise. The dollar is under siege by other countries skeptical of long term stability. Budget problems in all areas of government are threatening American's pocketbook as taxes appear to be their only solution. In short, gold is safe haven of choice.
The following chart shows the five year performance of the S&P 500, the U.S. dollar, gold and the Amex Gold Bugs Index (a group of gold mining stocks).
Notice that over five years, gold climbed a staggering 129.5%. The gold miners performed nicely as well, up over 70%. The stock market and the dollar are sagging!
If a picture is worth 1000 words, this picture just might be worth a thousand dollars in your pocket! Clearly, gold is truly everlasting and all citizens worldwide (except disbelieving Americans) agree that gold represents safety in rocky times. Most folks (Americans again are sleeping...not you, other Americans!) recognize that the world economic situation is comprised of higher oil prices, Middle East conflicts, social unrest, and runaway financial problems. Furthermore, they recognize that these problems take time to solve. Just waving fairy dust like our politicos are doing will not solve our challenges.
Silver is also doing well. Silver soared 93% from its lows in the past year compared to 48% for gold. To some people, silver is a better buy since it has a lot of industrial uses. The same worldwide fear that drives gold is also driving silver.
Are you buying gold and silver? You ought to be. The evidence speaks for itself. It is now up to the jury to decide!
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Thanks for reading this weeks Vance Advance!
Working for your Wealth and Peace of Mind,
The Vance Capital Management Team |
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