Hi C Hudson; One big difference between oil and gold is that gold production is a lot lower, as a percentage of amount held above ground, than oil production.
Consequently, changes in production have less of an effect in the gold market than in the oil market. This is why the gold producers can't drive the price up much.
Another big difference, is that it costs a lot of money to store oil, but gold is cheap to store. On the other hand, it is very expensive to shutdown mine production. So if the miners were going to do anything, what they would do is reduce sales of gold, not production. This would have the effect of making their balance sheets very dependent on the price of gold, which is exactly what they don't want to have. What they want is predictability, which is why all those hedging programs were in place.
If the miners wanted to run the price of gold up, they might as well buy it on the futures market. (For producers, this is known as a "Texas hedge". An example would be a rancher who goes long beef futures. It is not the sort of thing that rational managers do.)
Incidentally, the (relative) immunity to changes in price caused by changes in production is why gold is a great store of value.
While I expect that the price of gold is far, far below what it will be in a few years, I really doubt that the miners are going to reduce production. In fact, with the recent price rise, they are, without doubt, increasing production as fast as they can. But all that production increase will hardly make much of a dent in the total amount of gold held above ground, and that is a very good thing.
-- Carl |
