Lorne - I responded to the author of the gold stock article
investorsalley.com
Mike:
Thanks for your article, but I think you missed the most critical fact: there's a short position of perhaps 8,000 tons in Au. That's what dominates any long-term consideration. Gold has been around for too long to be casually tossed aside, as the current "wisdom" has it. There will always be demand for it because governments can't be trusted, and calamity, as they say, happens.
In the short term, there's a 1500 ton/year deficit between demand and production, being filled by gold leases from central banks. That flow will stop and probably in the short-term, perhaps the 2 year span. Europe will not dump their gold, as some have alleged. There's too much common consensus against it. Gold production will shrink at these gold price levels, because technical innovations have run their logical course and a breakthrough to rival heap leaching is probably not in the cards. It would take a major new gold find to affect gold prices adversely. On the demand side, there's been a consistent 5% growth worldwide in recent years. There's no reason for that not to continue, despite the rhetoric.
There is good reason for gold mines to have such premiums, because of the possibility of a major find. But there are gold plays out there who have better valuations and, as you say, better balance sheets, you just have to look. Many junior golds come to mind.
As for silver, there may only be 3 years of above-ground reserves left that can be readily mobilized to fill the deficit gap. It will take a price well north of $10/z for the majority of the above ground supply to be mobilized. The outlook for silver is perhaps more favorable than gold, because if investment demand in the rich western countries ever kicks in, we won't see anything like the anemic $5/z in recent years; the price will be considerably higher.
Bob Dobbs,
creator of "Bob's Bombshelter Bear Page"
jps.net
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