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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