gold supply comments
Posted by WARREN MOSLER on November 2nd, 2009
Nadler: The gold market is made up of five pillars. On the supply side, you have mine supply, scrap gold supply and occasionally central bank sales or purchases (that’s kind of a swing factor). On the demand side, you have fabrication demand for jewelry and so on, and investment demand, which is a cyclical, emotional phenomenon—people go into stages of panic, fear, greed, and bubbles are formed, and so on.
On the supply side, lately you’ve started to hear people say supply is running into oblivion, that it’s “peak gold.” Well, the reality is that GFMS’ latest computations (which run through midyear) show an actual 7 percent increase in mine output, of 1,212 tons. Miners went on hiatus only because the credit crunch prevented those who had found all this gold from actually coming to market with it.
Crigger: Sounds like we won’t be hitting “peak gold” anytime soon.
Nadler: No. Maybe we’re not finding huge discoveries like we used to, but some $40 billion has been sunk into the ground to find new gold, and nobody goes out and spends $40 billion figuring it’s wasted money and nothing else will be found. And miners are eager to find new gold, because the average cost of production is in the low-$400s. So at $1,000/oz, it’s a party.
So now that some of that gold is starting to show in the pipeline, we better have eager takers for it all, because when you look at incremental mine additions over the next five to six years, we could have as much as 400 tons’ worth of additional mined supply coming into the market year-on-year. That’s significant—that’s almost 25 percent higher yearly output in mining than people thought was coming.
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November 2nd, 2009 at 11:46 am
Do not try to fathom the economics of gold. It is 100% coordination and emotional.
Also, his numbers on mining output are not important. The quantity of gold already in circulation is much much larger than that (100x) so anyone who is holding gold because it does not get “diluted” like currency will not care if the stock is growing at 0.9% a year instead of 0.8% a year.
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Floccina Reply:
November 3rd, 2009 at 5:41 pm
I am shorting gold through DGZ, just a small bet. I consider it a bet against inflation and a bet against gold, which I see as a commodity like any other. I believe that we will not get high inflation but if I am wrong I believe that petroleum and real-estate are a better hedges against inflation.
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Curious Reply:
November 3rd, 2009 at 9:55 pm
Higher inflation means higher gold prices, no?
How does shorting gold hedge that?
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November 2nd, 2009 at 1:10 pm
Funny that gold was once associated with currency. Why in the world didn’t anyone complain ? Didn’t they realize that it was outright silly ?
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November 2nd, 2009 at 5:55 pm
Gold standard had its features. Better than many things that came before it. Not as good as a well run fiat regime. Unclear to what degree it beats a poorly run fiat regime.
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November 3rd, 2009 at 2:14 am
Winterspeak,
My history is poor. What was the system before that ?
More than the standard, I think the IMF ruined the fortunes of developing countries even in the fiat regime.
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winterspeak Reply:
November 3rd, 2009 at 12:25 pm
Ramanan:
You had all kinds of things, like giant mill stones, cowrie shells, or straight barter etc. etc. Gold is nice because it’s convenient to carry around, it’s a standard, helps with coordination, and so on. All the convenience stuff which is a standard part of the Austrian currency story (and true, just critically incomplete).
IMF definitely gave out bad advice. I think Tim Geithner was involved with them, too. Talk about failing upwards!
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JKH Reply:
November 3rd, 2009 at 12:59 pm
Winterspeak,
There’s a new flu strain going around – Commentitus Ubiquitous – I think I’ve got it. Get yourself checked out.
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November 3rd, 2009 at 1:33 pm
Winterspeak,
Thanks. Today India threw away $6.8b to buy gold from the IMF. The sad part is that they may even make a return out of it if gold prices go up. Not really happy for the country since even if they sell that at some $7-8b, it won’t make any difference to the country.
JKH,
Yeah seen you at some places. but always enjoy your comments. Btw, I dropped two comments on two different post at Krugmans and the guy simply omitted them. It was a simple polite referral to levy.org and Billy Blog.
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JKH Reply:
November 3rd, 2009 at 2:04 pm
Hi Ramanan,
Bad form chez Krugman…
BTW all, Canadian blogger Nick Rowe says he wants to do a post “attacking Chartalism”, prodded in small part by the odd comment I may have left there. If that happens, I told him I’d alert the Mitchell and Mosler blogs as a call to arms. I didn’t mention Winterspeak as the pincer movement.
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Jim Baird Reply:
November 3rd, 2009 at 2:37 pm
I’ve tussled with him before. He seems much more open to the “unconventional” than most in the mainstream. (Not that he beleives any of it – but unlike Delong and some others he doesn’t just delete any comment that disagrees with him. I guess it’s the Canadian in him…)
I think his blog would be an excellent place to hash things out. I’ll keep an eye out.
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Scott Fullwiler Reply:
November 4th, 2009 at 9:46 am
A bit of discussion on Chartalism today . . . not very informed, though. Some good links posted, but Rowe severely misinterpreted, and then some discussion based on the (horrible) Wikipedia entry on Chartalism. Didn’t see any reason to jump in as defining terms would seem a rather tall mountain to climb with these folks. Could be wrong, of course.
November 3rd, 2009 at 2:31 pm
There’s nothing to attack. It’s just accounting.
how about gold up $31 with the dollar up?
the bubble isn’t bursting yet.
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November 3rd, 2009 at 6:53 pm
” Not as good as a well run fiat regime.”
when did that happen?
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Ramanan Reply:
November 4th, 2009 at 9:22 am
.. happen in 2012
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winterspeak Reply:
November 5th, 2009 at 2:57 am
LOL! I hope so, but not holding my breath.
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November 4th, 2009 at 1:04 pm
I willing to agree that the government did a decent job say 1980-1999 with monetary policy, but that’s the thing, it ended.
it’s 2009. the days of the government centered country are over. the capitols and city halls aren’t the center of our lives and communities anymore.
we don’t need this from the government
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