Following a drop in demand for gold during the third quarter of this year, gold should rebound in the final quarter, the World Gold Council (WGC) forecasts. The mid-year slump in demand was mainly due to the slowing of the Chinese economy, according to WGC.
“The slowing Chinese economy clearly had a harmful effect on consumer confidence. Investors also didn't want to strike big deals before the new leadership is elected,” said Albert Cheng, WGC’s managing director in charge of the Far East region.
Cheng expects a recovery in Chinese gold demand in the fourth quarter as the new leadership rolls out stimulus measures to kick-start the sagging economy. The approaching holiday gift season will give an additional boost, he believes.
“An increasing number of investors realize that buying gold may add stability to their investment portfolios and they are seeking long-term yield rather than short-term profit,” said Li Xiaodong, a wealth manager with China Construction Bank Corp.
Gold Discovery Rates are Sliding
The supply side of the gold supply/demand equation is getting squeezed because new gold discoveries are fewer and farther between.
Even with record spending on exploration — $8 billion last year — gold discovery rates are sliding, according to Jamie Sokalsky, CEO of Barrick Gold Corp., the world’s largest producer. There were only three new gold discoveries last year, compared with 11 in 1991. None of the three most recent ones could be described as “supergiants” holding more than 20 million ounces, Sokalsky explains. He predicts gold’s bull market shows no signs of weakening, but it won’t help find more gold.
“I don’t see a surge in gold production if we saw a gold price of $3,000,” Sokalsky says. “At a higher gold price, we’d still be experiencing the same challenges. I’d suggest there’d be very limited response to that higher gold price.
“Getting mines permitted, dealing with the government and the communities, environmental issues, all of that takes so much longer,” he adds. “It also costs multitudes more to build a mine and to finance that.
“It’s getting harder to find large deposits and to get those deposits into production takes at least twice as long as it might have taken a decade ago,” Sokalsky explains. “We’re not going to see new mines coming in as fast as we thought to replace old mines that are closing.”
Barclays forecasts that total physical supply may actually shrink 0.4 percent next year.
Platinum, Palladium Heading for Worst Shortages in a Decade
Precious metals foundry Johnson Matthey forecasts that platinum and palladium are headed for the biggest shortages in at least a decade this year, as strikes and safety stoppages in South Africa and falling sales from Russia cut supplies.
Labor disputes in South Africa will help cut platinum output to the least since 2000 and leave the market short by 400,000 ounces, the most since 2002 and compared with last year’s surplus of 430,000 ounces, London-based Johnson Matthey says in a report.
Palladium supply will lag demand by 915,000 ounces, the most since 2000 and compared with 2011’s glut of 1.26 million ounces, on lower output from mines and stockpiles in Russia and record usage from automakers.
“It’s unlikely that supplies of either platinum or palladium are going to rise,” notes Jonathan Butler, publications manager at Johnson Matthey. “We’re assuming that demand is going to remain robust for both metals. Overall, we’re positive on investment demand, that conditions will remain favorable.”
About the Author: Mike Fuljenz
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