Daily Gains Letter

Supply and Demand Metrics Suggest a Bright Future for Gold Ahead

By for Daily Gains Letter |

Bright Future for GoldThe case for higher gold bullion prices continues to become stronger each day. As I have been harping on about in these pages, there’s significant evidence that the demand for the yellow metal is increasing and supply is facing hardships.

Let’s look at the demand side of gold bullion first. It is robust, to say the very least.

I have reported here before that we see strong demand for gold bullion from the Far East. The consumers in the two biggest gold bullion-consuming nations, India and China, continue to buy more. This is nothing new.

What’s really surprising to note is that as the prices have come down, India and China weren’t the only places that saw demand for gold bullion increase. Other countries in the global economy also saw a spike in demand.

Consider the Royal Canadian Mint (RCM). In the second quarter of this year (ended June 29), the Mint recorded revenues of more than $1.0 billion. This is the first time in history that the RCM has achieved sales of this magnitude.

“This unprecedented result was due to the soaring demand for the Mint’s world-renowned Gold and Silver Maple Leaf bullion coins and sustained popularity of our expertly handcrafted numismatic products,” said Ian E. Bennett, president and CEO of the RCM. (Source: “Royal Canadian Mint achieves $1 billion in revenue in single quarter for first time in its history,” Royal Canadian Mint web site, August 27, 2013.)

At the RCM, the sales of gold bullion in coins in the second quarter increased 144% compared to the same period a year ago, reaching 403,000 ounces.

Moving towards the supply side of gold bullion; it strengthens the bullish case. As a matter of fact, we can even see supply decline in the form of negative growth.

South Africa, the fifth-biggest gold bullion producer in the world and responsible for six percent of the world’s gold production, is facing issues. The miners are asking for higher wages, and about 80,000 of them have gone on strike. The National Union of Mineworkers is calling for an increase of 10% in wages for miners in the country. (Source: “South African gold miners go on strike,” BBC web site, September 3, 2013.) The strike essentially means miners have stopped producing; this, in turn, adds problems to the supply.

Adding more to the misery, with gold bullion prices remaining under pressure since the second quarter, the gold miners here in North America are contemplating reducing their production. We have already seen them decreasing their exploration funds, and if the prices remain bleak, we could see them close down the high-cost mines.

When it comes to the direction of the prices for any commodity or stock, it usually comes down to the basics—supply and demand. For gold bullion, we are seeing supply come under pressure and demand increase. I continue to be bullish on the yellow metal, because it all seems very convincing.

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