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.

My favourite quotes from the Gold Symposium:

As I have stated a few times the Gold Symposium was a great event. I jotted down a lot of notes and would like to share some of my favourite quotes with you. Please be aware that the quotes may not be 100% word perfect (had to write fast) but do reflect the general words of the presenter.

David Evans:

The combined value of all the worlds gold miners is less than that of global corporation, such as Exon.

Expect governments to ridicule sound money experts. They will call you a nut, a conspiracy theorist, etc. They will try and frighten you out of owning sound money.

Eric Sprott:

The supply of gold has hardly increased over the last ten years. It is currently only growing at 1.4% each year. (This is significantly less than the rate at which fiat money is being inflated away)

Exports of gold from Hong Kong to China were 57 tonnes in September 201 alone – a six fold increase.

Gold Assets only represent 1.5% of the totals world’s assets.

Louis Boulanger:

Up until August 15, 1971, there has never in history been an era when no paper currency was linked to gold.

Since 1961 the US national debt has never gone down.

If we had sound money today, gold would be at $10,000 an ounce.

Ludwig Von Mises:

There are three types of money:

1.    Money that is worthless (Zimbabwe Dollars)

2.    Money they will be worthless (US Dollars)

3.    Real Money (Gold)

The 1980 gold price of $850, adjusted for inflation equals $7,000 per ounce

Some Notes on Kentor Gold from the Gold Symposium

The Gold Symposium was a great event and is well worth going to. I will certainly be there next year. Obviously one of the highlights for me was being able to meet Simon Milroy the Managing Director and CEO of Kentor Gold. He comes across as an extremely knowledgeable, calm and focused individual who has a clear direction for the company. Put simply, I think we have an excellent management team.

I made a few notes on Kentor Gold which I have summarised below. Please do not take these as the direct words or thoughts of KGL or any of their management team. There is always the chance I misinterpreted their comments. The usually disclaimers also apply.

Andash:

·         The government has assumed their 20% share of the project.

·         Once the government had their 20% share they asked KGL why the project was taking so long and KGL explained the situation. The government now wants to see the project up and running as soon as possible.

·         If we get approval it should be prior to Christmas with construction starting early in the New Year. In my opinion I believe the Andash approval may only be weeks away.

·         At $2.75/pound copper the cash costs at Andash are $29/oz of Gold. If you factor in current prices (for copper) the cash costs are negative. I.e. think of it like mining all the gold for free.

·         The local town has a population of 4,000 people and is 4km from the Andash project. The sentiment in town has completely changed and the people now want it to proceed.

·         Only five wealthy land owners ever opposed the project (for their own personal reasons, not because of the environment or anything else). That opposition appears futile now that the government is involved in my opinion.

·         All the engineering planning is completed; we just need to start construction.

Atkash:

For those of you who are not aware Atkash is a “satellite” mine a short distance away from Andash. By itself it is too small/uneconomical to mine. KGL had the option to acquire the project but with the previous uncertainty surrounding Andash they chose not to. Atkash has the potential to increase the NPV of the Andash project if it can be incorporated at a later date.

·         KGL chose not to exercise the option on Atkash as it would have cost them $8 million to do so and without Andash it is essentially worthless.

·         Once approval is granted for Andash, KGL will re-examine Atkash and are confident of getting it.

·         A Russian Co recently offered the land owners $14m odd for Atkash, but reneged on the deal. KGL now appears to be in the “box seat” to pick this project up again.

Jinka Minerals – General Information:

·         Jinka Minerals was never purchased to take the focus off Andash. KGL’s strategy has always been to acquire > develop > operate and as such they were always on the lookout for additional projects.

·         Jinka Minerals was about to go to an IPO but KGL was there at the right time and jumped in beforehand.

Burnakura:

·         The feasibility is delayed because they are looking at the underground operations which will ultimately be more profitable.

·         Although the feasibility is delayed this does not affect the timeline to production. Production is still scheduled to commence in June 2012

Geothermal Project

·         After "ditching" geothermal projects in Central Asia the company undertook a review of other opportunities throughout the South Pacific.

·         They could receive confirmation of the licence any day now. All the company had to do to secure the licence was to such a landholder’s claim which they have done.

·         Once the project is granted one hole needs to be drilled to take the project from inferred to indicated resource status. It is then good to go (so to speak).

·         Kentor will then spin the company out into a new co. They are not sure if KGL will retain shares in the company themselves or provide the shares to current holders (of KGL).

·         Strategy will obviously be to maximise shareholder returns (all extra cream IMO).

Gabanthia/Jervois:

·         Not much was said other than that the deeper they drill at Jervois the better the results get.

·         The preference is still to truck ore from Gabanthia to Burnakura for processing.

The Gold Symposium, Sydney

The other day a poster on Hotcopper commented on the upcoming Gold Symposium in Sydney, which will be occurring on November 14 and 15. Before this I was unaware of the event, but after checking out the website and program I knew it was something that I wanted to attend. The ticket prices are now $299 (early birds were $199) and the keynote speakers include: Ben Davis, Dan Denning, David Evans, Egon Von Greyerz, Eric Sprott, John Embry, Kris Sayve and Louis Boulanger.

You can read more on the keynote speakers here

In addition there are a whole host of ASX listed gold explorers and producers presenting over the two days, including our very own Kentor Gold. As a result I was planning on organising tickets later in the week, but as luck would have it I received an invitation to attend on behalf of Kentor the other day (a nice little bonus of being a shareholder).

It should be a very informative event and I look forward to catching up with some other Kentor Gold shareholders while I am there. If anyone else who views this blog is attending please let me know so I can say hi.