Gold Supply & Demand Statistics

Following on from my earlier posts on the Gold Symposium I would like to share some information on the supply and demand of gold. I had held off on this posts as the organisers said they would post the Keynote Speakers speeches on their website, but unfortunately they did not put up the slides which contained the information. As a result I have most, but not all, the figures mentioned (please do your own research to verify each of these figures as I did have to write them down fairly fast). Received

2000	2010	Net Increase/Decrease:
Production: 2,620 Tonnes	Production: 2,689 Tonnes	(79) Tonnes
Central Banks: Net Sellers of 400 Tonnes	Central Banks: Net Buyers of 400 Tonnes (est)	+800 Tonnes
US & Canadian Mint Coin Sales: 290,100 oz	US & Canadian Mint Coin Sales: 2,355,500 oz	+64 Tonnes
Limited ETF’s	Physical Gold ETF’s now hold 2,300 Tonnes	Say + 400 Tonnes
China Imports/Consumes: 207.5 Tonnes	China Imports/Consumes: 700 Tonnes	+492.5 Tonnes
India Imports/Consumers:  535 Tonnes	India Imports/Consumers: 918 Tonnes	+ 383 Tonnes
		TOTAL INCREASE: 2,060.5

On these simple metrics we can see that the demand for Gold has increased by over 2,060.5 tonnes between 2000 and 2010. We also need to keep in mind that Gold supply only increased by 1.4% per annum over that same period (i.e. nowhere near enough to match all the demand).

So if demand is not being met by an increase in supply then where is this extra 2,000 odd tonnes of gold coming from? Well some of the Keynote Speakers speculated that certain Central Banks are “leasing” their gold into the market and to other central banks. They can continue to do this as long as they hold the physical gold in their own vaults but eventually they will run out. Once this happens and if demand remains constant at 2010 levels then eventually total demand will outstrip supply of all new gold coming out of the ground and all gold held in Central Bankers vaults. Using simple economics and the concept of supply and demand the effect of this would be an increase in the price of gold as the large number of buyers bid for the “small” amount of gold available for sale.

When asked why Central Bankers would be “leasing” their gold out when the price of gold is clearly heading up the consensus was that Western Central Banks will do anything to maintain the “faith” in their fiat currency. One way of doing this is to make sure gold does not go too high. However, like a dam bursting at the seams there is only so long you can hold the water back, so in my opinion I think they are fighting a losing battle.

Gold Symposium on Tomorrow & Tuesday

As some of you may already know I will be going to the Gold Symposium tomorrow and Tuesday. It is an event that I have been really looking forward to after hearing about it only a few weeks again.

                               

In particular I am really looking forward to hearing from Kentor Gold and have another of other companies that fellow posters have mentioned I see. These include SLR and MRP.

Although no one who views my blog has contacted me to say they will be there I plan on keeping you all updated via my twitter account. I will try and post a number of updates throughout the day and share any interesting information I hear.

If I get the chance I may even write an article for the blog.

Gold About to Rally Hard?

In my last post on Kentor Gold I mentioned that I would post about my current thoughts on gold. Well as you would know I posted a chart the other day that showed gold had broken below the ascending triangle pattern that had been forming. As a result I thought there was a chance that it could head lower and perhaps even touch the lower band of the long running uptrend which stood at $1,500 per ounce.

However, this can now be classified as a false break in my opinion, with Gold rallying hard over the last couple of days (up well over $100 per ounce). It has now broken to the upside and out of the upper band of the long running channel. As a result we may be about to see another strong move to the upside.

Anyway I posted a video on youtube which explains my thoughts more clearly so please feel free to check it out.

Gold: Is It Heading Lower?

You guys know I am not a massive fan of charts, but I do take a look at them from time to time and one area where I have had some success is charting gold and silver. For some reason they seem to respect support/resistance and the bands of up trends/down trends quiet nicely. I don't post many of these calls on this blog, but if you are interested you can check on my youtube channel.

Any way I thought I would post a chart today because gold has been moving in this triangular or wedge shaped patten for the last couple of weeks. This has been characterised by higher lows and the inability for gold to break out of the upper band of its long running up trend around $1,700. In last nights session it broke to the downside which suggests to me that its low of around $1,530 may be tested or alternatively the lower band around $1,500.

If gold can then bounce strongly off this lower band then I think it will be very positive as it will have confirmed that the long term up trend remains in tact (from a technical view) and it can then continue its long sustained run up without getting ahead of itself and going parabolic.

Why is this important for me? When I own one gold stock at the moment, KGL, and have a close eye on a couple of others. A short term drop in the price of gold could result in some weakness in the share price providing a good opportunity to enter certain stocks.

Please let us know your thoughts and as always please do your own research and consult a licenced financial advisor.

Is Gold on the Verge?

Yesterday I posted a video on Youtube outlining my thoughts on gold. Based on the price action that we had witnessed over the last couple of sessions I thought that one of two scenarios could play out:

1.    That a new uptrend was being established at a steeper angle

2.    That gold had formed a double top and was likely to pull back and consolidate between $1,750 - $1,850 (bullish target) or within the previous channel, $1,500 - $1,650 (bearish target).

Below is a copy of the chart that was contained in yesterday’s video:

Last night’s action was reflective of my earlier analysis as we did see further weakness in the price of gold. As the new chart below shows the price gold dropped down to the new trend line that I had previously mentioned. The lower wick indicates that it did fall below the trend line during the session, however, what is important is that it closed pretty much smack bang on it. As a result of this we now need to see a green candle for this new uptrend to continue. If we see further weakness in the price of gold tonight then the uptrend will have broken down and gold will head lower in my opinion. This then brings my second scenario into play and could result in consolidation between the two price levels outlined above.

Finally I don’t think either consolidation scenario would be particularly bad for gold in the long term. My initial video that I posted a number of weeks back discussed how a parabolic move is not an ideal scenario for anyone who is invested in gold for the long term. If gold was to move back into its original channel then the long term uptrend could continue for a considerable amount of time.

See my new video based on last nights price action here.

Disclaimer: The above is not advice, just some general thoughts. Please do your own research and consult a licenced financial advisor.

New Position: Kentor Gold

As I mentioned in last week’s post on the price of Gold I have been researching a number of gold stocks over the last couple of months. This morning I picked up a parcel in Kentor Gold (ASX: KGL) at an average price of 0.10c. I originally had my order in at 0.105 however KGL opened sharply lower. This is a result of yesterday’s price action which saw the share price hit 0.115 in anticipation of the drilling results that were released this morning on one of the company’s projects (Jervois). It was classic price action of buying into the lead up of the announcement and selling into it upon its release.

I will provide a more detailed analysis of the company and my reasons for investing in KGL in the near future, however in summary:

The company was progressing with a gold mining project (Andash) in Kyrgyzstan, however with the political turmoil occurring in the country and the potential for delays with the project the company sought to diversify its holdings. On 1 April 2011 Kentor Gold announced an agreed takeover of Jinka Minerals. As a result of the takeover Kentor Gold acquired three projects: Burnakura (Gold), Gabanintha (Gold & Copper), Jevois (Base Metals).

All the projects have supported previous mining operations with Burnakura operating up until October 2009 when the operation was placed on care and maintenance pending the development of additional underground deposits. There is a ninety person camp, offices and workshop with the plant easily able to be bought back on line for minimal investment. As a result production is expected to recommence in June 2012 and the free cash flow generated from this mine will fund the company’s Gabanintha and Jervois projects.

Andash is also likely to get the go ahead once some local opposition to the project is overcome and provides further upside potential to the company’s share price.

As a result of the acquisition the balance of my portfolio (based on the original purchase price of each stock) has been adjusted to the following:

OBJ Limited: 25.66%

MHM Metals: 12.50%

Kentor Gold: 11.81%

Cash: 50.03%

Gold Pulls Back... Is It Following Silvers Move Earlier In The Year

Okay, so my earlier prediction about gold having a short term pull back is proving correct, albeit a few days early. I originally thought that gold would only start its pull back based on the outcome of the Fed Reserve speech on Friday (see my earlier post on why here). However it appears that traders have started to take some money off the table in advance which has led to falls in the gold price over night.

Only adding fuel to the fire is an increase in gold margin requirements by the Comex. The margin required to trade gold futures was increased by 27% to $9,450 per 100 ounce contract in the speculative Tier 1 category. This follows an earlier increase of 22% on 11 August 2011. The net effect of this move is that it makes it more expensive for speculators to trade and hold gold, thus resulting in the traders reducing or liquidating open positions.

Now anyone has had had even a passing interest in the precious metals market will recall what happened to silver earlier in the year. For those who don’t know margin requirements were raised by Comex. As I have stated earlier in my blog I base my investment decisions on fundamental advice, however I could not resist posting another chart based on the latest moves in the gold price.

As I mentioned in my earlier post gold went parabolic and had broken out of its upward channel. At the time I commented that it would be better for gold in the long term to pull back and consolidate at a new level before continuing its upward trend. Based on last night’s trading and the action of the CME (Comex owner) I now think gold is replicating what silver did earlier in the year.

As you can see from the above chart silver (in USD) went parabolic after breaking out of its channel. Shortly after the CME raised margin requirements and the price came crashing back down. This followed by a period of consolidation between $33 and $38 an ounce. It then hovered around the $40 mark before taking off over the last few weeks alongside gold (it has also followed gold’s pull back).

If we now look at the gold chart we can see the same parabolic move, followed by a pull back and CME margin hikes. If gold is to continue the same pattern set by silver I would expect gold to pull back into its original channel and consolidate between $1500 and $1700. Much like silver I anticipate it will then recommence its upward march sometime in late 2011 or early 2012.

As a result of this action I have decided to hold off taking a position in a current gold producer. I feel that if we are going to see a larger pull back in the price of gold that some stocks (and in particular the one I am looking at) will also be sold off. I will still accumulate my longer term holding once I have concluded my research and feel satisfied with its future potential. I look forward to providing more information on this stock once I have finalised my research.

Gold Goes Parabolic

For those of you who have read my first couple of posts you will know that I focus primarily on fundamental analysis for my investment decisions. I have however decided to post a chart today.

Over the last couple of weeks gold (shown here in USD) has broken out of its channel which has been in place since October 2008. Now a lot of “Gold Bugs” would be rejoicing at the news and saying “I told you so”, however when prices go parabolic it can be an indication of an end to the run. This occurs because all your mum and dads, taxi drivers and work colleges have heard about the move in the stock (or in this case gold) for a number of months or years. They keep thinking that it cannot go higher, yet it still does. Eventually these people jump in because they don’t want to miss out any more. As a result they push prices even higher, however in many instances this is the last big move up before the price comes crashing back down.

That said there are strong arguments against this being the case at this point in time and I suspect that rather than gold crashing it may consolidate at this higher level some time or retrace and form a new upward channel, albeit at a steeper incline that the previous one. This would be the most positive scenario for long term holders of gold as it removes the threat of a crash in prices which typically follows these parabolic moves and creates a new uptrend that could run for a considerable amount of time.

Now what does this have to do about my investments and this blog? Well I have been examining a number of long term gold mining stocks over the last couple of months. The economics of their projects continue to improve based on the ever increasing price of gold. However many of these companies are 12 months or more away from production and I believe there is an opportunity for current gold producers to be re-rated within the short term. For those of you have followed Gold stocks on the ASX for the last year or so they have largely lagged behind the gold price. This has in part been due to the strong Aussie dollar. However now that gold has broken out of this channel people are starting to do the maths and realise that a mine that was profitable at $1,200 an oz or $1,500 an oz, will be extremely profitable at $1,700, $1,800 or perhaps even $2,000 an oz.

I will admit I may have missed the boat in regard to these shorter term opportunities (although my longer term targets are still yet to register any significant gains and remain in my sights).  I do however expect that part of this move in gold may be in response to the markets anticipation of QE3 from the US Federal Reserve who meet on Friday. At this stage I don’t think they will come out with a full blown government debt/bond buying program like they did with QE2 and are more likely to tinker at the edges or put in place some alternative measure. As a result I suspect some traders may be disappointed with the news and sell off gold in the short term.  On the other hand if they do fire up the printing presses there could be a short term pull back anyway as traders sell to lock in their profits (much like the old buy on rumour, sell on fact).

This could provide a good short term entry point for a couple of gold plays I am looking at on Monday or Tuesday next week. At this stage I don’t think the US stock market is pricing in a full blown QE3 program either so I don’t expect there to be massive disappointment if it doesn’t eventuate. This could result in an ideal situation (in the short term at least) with a decreasing gold price and some stability in the stock market.

EDIT: 24/08/201 - After making this post yesterday the DOW closed up 2.97% with the majority of commentators attributing this to the Feds meeting and potentially QE3. Gold has also pulled back below $1,900 USD/oz. As a result I do expect that my prediction above of buying opportunities early next week could still eventuate, however that now needs to be mixed with some caution incase the markets have gotten ahead of themselves with their expectation of QE3.