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The Gold and Silver Story
The Law of Supply and Demand
Gold Supplies Fall
Primary gold supply fell in 2008 for the 9th year in a row, from the all-time high of 2,600 tonnes in 2001 to 2,416 tonnes in 2008.
China, the largest gold mining country, and Russia, the 6th largest, are hoarding all the gold they mine, and are buyers on the open market.
The Chinese government has officially advised all citizens to buy gold and silver.
This was against the law only a few years ago.
From 1992 to 2007
90 deposits with 2.5m ounces or more were discovered.
But only 24 of them were since 2000.
South African gold production has decreased by 30% over the past 5 years.
At the moment, 80m ounces are mined each year but only 15m are discovered, in spite of a fivefold increase in exploration expenses
and demand is increasing
Worldwide gold demand increased by 7% in 2008.
China demand for investment gold [bullion, coins] grew by 396% in 2nd half of 2008.
Germany and Switzerland: gold demand soared by 500% in the 1st quarter of 2009, compared to the 1st quarter of 2008.
USA: gold demand increased by 216% in 2009.
Exchange Traded Funds purchases of gold went up 1500% in the 1st quarter of 2009 compared to the 1st quarter of 2008.
Gold sales of the US Mint went up 78% in 2008; silver sales up by 98%.
Australian Mint sales were up 94% in 2009 compared to same period in 2008.
Austria 1st quarter sales went from 1.9 tonnes in 2008 to 22.7 tonnes in 2009.
The US Dollar vs. Gold Story
Gold is negatively correlated to the US dollar.
Virtually all analysts expect the US dollar to weaken for many years to come, given the massive inflation of the money supply.
Countries like China, Russia, OECD, etc. are trying to get rid of US dollar reserves and discussing a new TWC [including gold] to replace it as the world's trading currency by 2018. This could drive gold up to $5,000 an ounce.
Central banks are buying gold again after almost 20 years of selling it. India purchased 200 tonnes of gold from the IMF in November 2009.
China, Brazil and Russia are expected to buy the other 200 tonnes the IMF is selling if India doesnt get there first.
Russia has said it wants to raise gold as a percentage of its reserves from 2% to 10%. That's 496 tonnes to 2480 tonnes, more than a whole year of world production.
China wants to raise it's 1.9% of reserves in gold to their goal of 10%. It would have to buy and/or produce 5270 tonnes, more than twice a year's worth of worldwide gold production.
How far up can the price of Gold go?
If gold went to its inflation adjusted high of 1980, it would go to $2,360.
If USA backed its currency with gold, gold would go to around $15,000 an ounce (this is probably an impossibility).
If the world's major trading currencies were to be backed by gold, it would have to go to $36,000.
Comex warehouses hold 66 tons of gold: They have promised to provide 1465 tons of gold for future delivery. In other words, they only hold 4.5% of the gold they need to back promised deliveries and must buy the balance in the not too distant future. This is half of worldwide gold production.
World's four largest bullion banks (warehouses) have been shorting the market heavily in September/October 2009 to drive the price down so they can buy the 1400 tons they need.
If the shorting works, gold will go down to $850 or so. Then the bullion banks will buy what they need which will start the next gold rally. This rally will no longer have a lid on it like we've seen with the bank's shorts for the last couple of years.
If the shorting doesn't work they'll have to buy gold to cover all their shorts AS WELL AS buy the 1400 tons they need to replace the shortfall. This would make the gold price go ballistic.
Everything we have said is true of Silver as well.
The silver price tends to mirror the gold price during an up cycle, although more volatile.
How to invest in Gold and Silver
Buying physical gold and silver:
Investment moves with the price of gold or silver.
Coins and bullion from the NZ Mint or the Perth Mint
Exchange traded funds: ETF's for gold, silver & platinum
Buying mining companies shares; Takes lots of research but adds leverage. More volatile than gold and silver.
Managed funds like Socrates Gold & Metals Unit Trust
Investing in oil:
Oil producing companies, large or small
oil exploration or support companies
Or oil and gas ETF's
Managed funds like Socrates Performance and Income Unit Trusts
10 Reasons to invest in
Gold and Silver
Increasing shortage of Gold & Silver supply
Rapidly increasing demand for Gold & Silver
Falling U.S. dollar good for Gold
Gold, Silver & Oil and real tangible commodities in rising cycle for at least 10 more years
Rising inflation pushes Gold & Silver up
World turning to Gold & Silver for safety in bad
7. World turning to Gold & Silver for safety in bad geopolitical times
8. Governments printing money drives Gold & Silver up
9. Bullion banks losing battle to keep Gold & Silver down
10. Central banks now buying Gold
TGN Fund Distributors
Socrates Fund Management