Gold Statistics
Research for Online Investors

by John Dalt

3/30/09

I read an editor's treatis on Gold this weekend. He felt Gold was a terrible investment at this time. He had five main points. They are:

1.       There is no inflation. 

2.       Gold Prices are easily manipulated. 

3.       Gold is in limited supply. 

4.       Gold has not performed well in the last 20 years. 

5.       The dollar is the global currency. 

Let us look at these points one at a time. 

1.       The present dollar is worth approximately 2% of its value in 1900.  Gold was worth $20 an ounce in 1900, 50 X 20 = $1000 per ounce.  The Federal Reserve has always inflated the money supply.  It only became easier once Nixon took the U.S. off the Gold Standard. 

2.       Ask the Hunt brothers about trying to manipulate and corner a commodities market.  They tried to corner the Silver market in1979.  They lost billions; you can read about them here. 

3.       That is the whole idea.  Governments cannot create gold. 

4.       Gold is subject to supply and demand. 

5.       This is true, for now.  What happens as governments move away from dollars?  China and Russia want to dethrone the dollar as the ‘world’s reserve currency’. 

If you would like to read more about how the government screwed Bunker Hunt and his brothers on their silver trade, read this.

The world’s major central banks hold approximately 15% of the gold stockpiles. For a number of years, central banks have sold about 1500 metric tons of gold per year. There were two reasons, raise money and depress the price of gold. Now countries are trying to increase their gold holdings. The banks of Russia, China, India, Brazil and in the Middle East have stated a policy of increasing their gold reserves. Russia added 90 metric tons in December of ’08, Ecuador 28 metric tons in January of 2009.

The IMF plans to sell 400 tons of gold this year. In 1999, 15 European central banks signed the first Central Bank Gold Agreement (CBGA) to coordinate their gold sales. Signatories limit annual gold sales to 500 tons, and no more than 2,500 tons in five years. Central bank sales were 279 tons in 2008, more than 200 tons less than in 2007. Estimates are that sales this year, ending Sept. 26 will be less than 150 tons.

Some banks ‘loan’ their gold to market participants in order to gain interest on the commodity. Much of this ‘loan’ gold found its way onto the futures and spot market, then repurchased on the futures market to return to the lender plus the interest. These types of actions were used to beat down the price of gold in the fall of ’08. Funds were liquidating futures positions to raise cash; others were borrowing gold and selling it into the weakness to drive down prices so they could buy it back to repay their loan. There was 2,345 tons of gold estimated to be loaned at the end of 2008. This is about half of the amount that was outstanding in 2004. Miners are committing less of their production to forward sales on the futures market, so they can capitalize on the higher spot market price. The U.S. holds 8,133 tons of gold, mostly at Ft. Knox, Ky., according to the Treasury department. The U.S. does not loan its gold. The IMF holds more than 3200 tons of gold, third only to the U.S. and Germany.

Gold production from mines in 2008 was 2400 metric tons. Gold production has been declining in the last few years. Mining is subject to environmental regulations, is capital intensive, and the easy mines have already been found and exploited.

In 2008, we had approximately 3900 metric tons of gold available on the open market (2400 production + 1500 sold reserves). In 2009, we have 2400 tons of production (less if production keeps declining) and central banks buying. This is a dramatic shift in supply and demand.

Conclusion: 

Gold could go much higher based on the supply and demand evidenced in the market. Demand for gold as an inflation hedge is increasing. With these two trends the future for gold profits looks good.

Pardon me, I just could not resist putting this picture in the newsletter.  I was saving it for next weekend if Kansas made it to the Final Four.  It was not to be.  We lost this weekend to Michigan State.

"The shot", outta time, put it into overtime to win the National Championship.

Last year was great, this year we left the dance early...We will be back!

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions. It may contain errors and you should not make investment decisions based solely on what you believe you have read here. Do your own research, it is your money. If you lose it, it is your responsibility, not ours or your grandmothers! The editor may or may not have a position in any securities discussed. The editor may have held a position in a security earlier, or in the future.

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