Peter Grant's recent column at Financial Sense enumerates the various factors squeezing gold supply on the open market, which will support prices over the medium and long term. We've mentioned the violence and labor unrest in South African mines as a factor, but Grant focuses more on just how much gold is being pulled into the vaults of the central banks:
- China, the world's largest gold producer, is not only consuming ALL domestic production, in large part by building gold reserves, but they are also on a gold mine buying spree in Australia (the world's second-largest gold producer.)
- Russia has doubled their gold reserves in the last five years, with no sign of abating.
Add this to the labor unrest in South Africa (oh, and China is looking to buy into South African mines, too) and a good portion of global gold production is either going into national reserves, or is stuck in the ground right now.
-by David Peterson