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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers -- Ignore unavailable to you. Want to Upgrade?

To: SouthFloridaGuy who wrote (1983)	11/17/2005 11:59:28 AM
From: kacy_in_LA	Respond to of 78419

I agree with your perspective, and its really only the short-run that matters with respect to gleaning profits from this market -- that is why I try to trade solely on technicals (which, as a academic economist, makes me something of a mild anathema among peers). After all, when the long-run gets here we will have an opportunity to make another short-run decision!

To: SouthFloridaGuy who wrote (1983)	11/18/2005 2:10:28 AM
From: Nevada9999	Respond to of 78419

This has been a very interesting discussion you have instigated on gold price fundamentals. A different factor that hasn't come up is mine supply. Mine supply is discounted as irrelevant, and it may be short and intermediate term, but long term it can be important. Especially when mine supply and price get out of sync. In the 1980's and 1990's the gold price was falling, yet mine supply was increasing, exacerbating the decline. Mine supply increased because heap leach technology brought many low grade disseminated gold deposits into production and major discoveries changed Nevada from an insignificant producer to the world's number three gold producer, along with respectable gold prices until 1996. Around 1997, European central banks began announcing and subsequently executing relentless gold sales. Mining companies followed suite and started forward selling (shorting) gold to an extent nearly as large as the central bank sales. Gold was below $300 for essentially all of 1999-2001 yet mine production continued to marginally increase as high grade cores of gold deposits were gutted. Gold companies announced cash costs under $200/oz, but these cash costs are about as useful as pro-forma earnings announced by tech companies. The bottom line was that the gold mining industry was being decimated, along with support industries such as drilling. Early stage gold exploration ceased almost entirely. All the while Wall St announced that gold only cost $150-200 to produce and was overvalued. It took until 2003 I believe before worldwide gold production finally rolled over and began to decline. Nevada gold production was down about 5% this year after four years of rising gold prices. The situation has flip-flopped. The world's largest gold producer, South Africa, is experiencing some of the largest decreases in production due to the strength of the rand and the maturity of their gold camps. There is a shortage of drillers, drills, geologists, etc., etc. Meanwhile, over 2400 tonnes of gold (77 million ounces) are still being extracted from mines each year (down from a peak around 2600 tonnes). Look through the press releases and see if you can find 77 million ounces of new production coming on line for each of the last 7 years. A new mine now takes 5-10 years to permit and put in production AFTER it is drilled off. Gold demand remains strong, the WGC just announced investment demand is up 56% this year. Mine supply is not going to rise and will probably fall for several years. The gold price should come down to where hoarders are willing to sell vs. what buyers are willing to pay. What buyers are willing to pay should depend on alternatives. I don't understand why there are so many buyers of 10 year notes at 4.5% in a currency that has dropped 25% over the last 4 years and has lousy fundamentals. If gold can't rise in this environment from levels more than 50% below inflation adjusted highs, perhaps it never will. Time will tell.