Global gold production is in terminal decline despite record prices and Herculean efforts by mining companies to discover fresh sources of ore in remote spots, according to the world’s top producer Barrick Gold.

By Ambrose Evans-Pritchard, International Business Editor
Published: 7:20PM GMT 11 Nov 2009

Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run.

“There is a strong case to be made that we are already at ‘peak gold’,” he told The Daily Telegraph at the RBC’s annual gold conference in London.

“Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore,” he said.

Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa’s output has halved since peaking in 1970.

The supply crunch has helped push gold to an all-time high, reaching $1,118 an ounce at one stage yesterday. The key driver over recent days has been the move by India’s central bank to soak up half of the gold being sold by the International Monetary Fund. It is the latest sign that the rising powers of Asia and the commodity bloc are growing wary of Western paper money and debt.

China has quietly doubled holdings to 1,054 tonnes and is thought to be adding gradually on price dips, creating a market floor. Gold remains a tiny fraction of its $2.3 trillion in foreign reserves.

Gold exchange-traded funds (ETFs) – dubbed the “People’s Central Bank” – have accumulated 1,778 tonnes, making them the fifth biggest holder after the US, Germany, France, and Italy.

Ross Norman, director of theBullionDesk.com, said exploration budgets had tripled since the start of the decade with stubbornly disappointing results so far.

Output fell a further 14pc in South Africa last year as companies were forced to dig ever deeper - at greater cost - to replace depleted reserves, not helped by “social uplift” rules and power cuts. Harmony Gold said yesterday that it may close two more mines over coming months due to poor ore grades.

Mr Norman said the “false mine of central banks” had been the only new source of gold supply this decade as they auction off reserves, but they are switching sides to become net buyers.

Barrick is moving fast to wind down the remaining 3m ounces of its infamous hedge book over the next twelve months, an implicit bet on rising gold prices over time.

Mr Regent said the company had waited too long to ditch the policy, which has made the company enemy number one among ‘gold bug’ enthusiasts. The hedges oblige Barrick to deliver part of its gold into futures contracts set long ago at levels far below today’s spot prices.

The strategy worked well in the falling market of the 1990s, but has cost the company dear in lost profits this decade. “Hindsight is always 20/20,” said Mr Regent, who was appointed from the outside earlier this year.

Barrick bit the bullet in the third quarter, taking a $5.7bn charge against earnings on hedge contracts. Liberation is at last in sight. In 2001 the hedge book topped 20m ounces.

Mr Regent said the hedge policy has weighed badly on the share price and irked investors, becoming a bone of contention at every meeting. The financial crisis brought matters to a head as markets fretted about counterparty risk. “It was clear to me that there were a significant number of institutions who wouldn’t invest in Barrick because of the hedge book,” he said.

Barrick produced 1.9m ounces of gold last quarter, down from 1.95m a year earlier. Costs have been “trending down” to $456 an ounce, though rising energy prices pose a fresh threat. Total reserves are 139m ounces, far ahead of rival Newmont Mining at 86m.

The hedge book venture has not been a happy one, but those who predicted that Barrick would eventually “blow up” on its contracts may owe the company an apology.

MDN Inc. (”MDN”) (TSX:MDN) is pleased to announce that the Tulawaka Gold Mine in Tanzania produced 29,489 ounces of gold during the third quarter ended September 30, 2009. Tulawaka gold production now amounts to 728,910 ounces since the beginning of operations in March 2005.

For the third quarter, 28,373 ounces of gold were sold into the spot market at an average price of US$948 for total sales of US$26.9M. Since the beginning of operations in March 2005, a total of 717,868 ounces of gold was sold.

For the third quarter, a total of 39,969 tonnes were mined from the underground mine at an average mine grade of 16.5 g/t gold whereas the plant facilities processed 115,236 tonnes of ore at an average grade of 8.5 g/t gold and at a gold recovery rate of 94.2%. The difference in tonnage comes from the stockpile at the plant.

Total cash costs averaged US$375 to produce an ounce of gold during the third quarter of 2009. The ROM (Run of Mine) stockpiles at quarter end were 262,390 tonnes at an average grade of 2.45 g/t gold, representing approximately 9 months of ore supply for the process plant, assuming the current throughput of approximately 30,000 tonnes processed per month due to the hardness of the rock on the stockpiles.

2009 year to date production results

For the first nine months of the year 2009, a total of 103,778 tonnes were mined from the underground mine at an average mine grade of 15.3 g/t gold whereas the plant facilities processed 325,666 tonnes of ore at an average grade of 7.6 g/t gold and at an average recovery rate of 94%, for a production of 74,543 ounces of gold. The difference in tonnage comes from the stockpile at the plant.

For the nine months period, a total of 71,790 ounces of gold were sold at the spot market at an average price of US$928 for total income of US$66.6M. Total cash costs averaged US$383 to produce an ounce of gold during this period.

Paul-A. Girard, President and CEO of MDN stated: “The operator has done a great job by continuously improving the underground mine operations. The year to date production results is above the annual budget forecasts and based on the ongoing mining activities and the favorable gold market conditions, the future looks good for Tulawaka.”

The Tulawaka project is a joint-venture between MDN (30%) and Pangea Goldfields Inc. (70%), a wholly owned indirect subsidiary of Barrick Gold Corporation and project operator through its Tanzanian subsidiary Pangea Minerals Ltd. The information disclosed on the Tulawaka Gold Mine is based on information provided by the operator.

by Olivier on October 20, 2009

Analysts at gold dealer Blanchard & Co. see the recent upwards trend in the gold price as sustainable and likely to continue.

Author: Lawrence Williams
Posted:  Wednesday , 07 Oct 2009

LONDON - 

U.S.’s largest gold dealers, Blanchard & Co. In New Orleans reckon that the current upwards trend is not only sustainable, but also that it should continue long term.

Blanchard’s chairman and CEO, Donald W. Doyle, comments that “The current rise in the price of gold and its projected sustainability can be attributed to the decline of the U.S. dollar and mounting pressure from the continuing rumble for it to cease being the currency of choice for oil trading. Whether or not that will happen remains to be seen. However, it does show how fragile the dollar is right now.”

The jump up in the price was possibly precipitated by a report in the UK’s Independent newspaper - since denied by some of the countries quoted - that the Gulf States, along with China, Russia, Japan and France are seeking an end to the oil trade being undertaken exclusively in U.S. dollars with the dollar being replaced with a basket of currencies including the Japanese yen, the Chinese yuan, the Euro and gold.  Although as noted above this has been denied officially, there is probably little doubt that such an option has, at the very least, been the subject of some discussion.

Indeed this does follow on public statements that some Central Banks have been raising the idea of replacing the once mighty U.S. dollar with a similar currency basket in reserves and one does see some momentum developing in such an idea.

In the past spikes in the gold price of this type have been followed by heavy profit taking which has seen prices decline sharply, but Doyle doesn’t see that happening this time.  Indeed there do seem to be signs of stabilisation at or near the peak levels which, if sustained, will likely lead to further peaks being reached.

“In this market, the price moves have brought in new investors,” Doyle says. “These investors are looking at the potential long term challenges of the dollar and are aligning their portfolios accordingly.”

Doyle says he thinks many investors were waiting for the gold market to have a higher record daily close prior to entering the market, and investor demand for physical gold has been robust at his investment firm.

“Right now, there is little or no inflation within the U.S. economy, yet gold is hitting new highs,” Doyle says. “Imagine what will happen when the velocity of money increases and all the dollars printed by the Fed make it into the overall economy - gold will push higher and higher.”

The report in the Independent may well have been one of the triggers moving the gold price upwards and onwards, but it does seem that the markets are again nervous enough about the strength or otherwise of the economy and the prospect of runaway inflation, and a corresponding continuing weakness in the U.S. dollar.  Safe haven investment is back as sentiment in the markets changes again.

By Halia Pavliva and Thomas R. Keene

Oct. 7 (Bloomberg) — Gold may climb to $1,650 an ounce by early 2011 on demand for an alternative to holding dollars and other currencies, said James Sinclair, a commodity investor and the head of Tanzanian Royalty Exploration Corp.

“The carry trade has dropped the dollar as a currency of choice,” Sinclair, the chief executive officer of Surrey, British Columbia-based Tanzanian Royalty, said today in a Bloomberg Radio interview. “Gold is competition to currencies.”

Today, gold futures touched $1,049.70 in New York, reaching a record for a second straight day. The spot price is heading for the ninth annual gain as demand rises for a hedge against inflation and the dollar heads toward a loss for the year. Some investors are buying the metal on concern that ballooning U.S. government debt will drive the dollar lower.

There is an “extreme amount of liquidity that has been injected in the financial system, not just in the U.S., but around the globe,” Sinclair said. The dollar has been undermined by major trading partners suggesting an alternative to the greenback and by China’s attempts to “internationalize” its currency by issuing more debt, Sinclair said.

President Barack Obama has increased marketable U.S. debt to an unprecedented $7.1 trillion as the government borrows to revive growth. Goldman Sachs Group Inc. has predicted that the U.S. will sell about $2.9 trillion of debt in the two years through next September.

With continuing stress in western economies, particularly in the U.S, changing attitudes towards gold from Central Banks, the desire to diversify reserve holdings by some major economies and the growth in ETFs, the outlook for the gold price is strong.

Author: Lawrence Williams
Posted:  Monday , 05 Oct 2009

LONDON - 

U.S. gold economist, Jeffrey Nichols, seems more bullish than ever on the prospects for substantial upwards movement in the price of gold over the next few years considering the latest development in the markets, perhaps even more so than in his previous analyses.  While Nichols has tended to be a gold bull in the past he has also been one of the more sober commentators amongst this genre so his developing views do require some attention. 

He feels the root causes of the current economic crisis - and his now extremely bullish views on gold  - have been decades of easy money, low interest rates, and a persistently expansionary monetary and fiscal policy by the United States.   As he put it in a speech to the Latin Exploration 2009 Conference in Buenos Aires last week, “As a result, Americans have been on a buying binge in the global marketplace, buying things we often don’t really need with money we don’t really have. And the rest of the world - especially China and the other Asian economic powerhouses - have been co-conspirators, lending us the money to satisfy our need for more things in order to promote economic growth and high employment in their own economies.”

He likens the situation to a massive Ponzi scheme on a scale never before seen.  “Beginning late in President Reagan’s second term with the appointment of Alan Greenspan as Chairman of the U.S. Federal Reserve and continuing with Ben Bernanke at the helm of America’s central bank, the Fed has pursued an expansionary, low interest-rate policy that has placed growth above all else” reckons Nichols.  “During these years, every economic or financial-market crisis was met with injections of liquidity into the banks and financial markets with interest rate cuts often to negative inflation-adjusted rates of return.

“The stock market crash of 1987, the Gulf War beginning in 1990, the Mexican Peso Crisis in 1994, the Asian Currency Crisis in 1997, the Long-Term Capital Management bankruptcy in 1998, the Internet Dot-Com Bubble in 2000, and the U.S. Housing Bubble that ended in 2007:

“Each crisis was met with more money and lower interest rates - a policy that came to be known as the Greenspan Put and more recently the Bernanke Put because it assured many of the most reckless risk-takers they would not lose a red cent.

“We never would have had the last stock market boom carry valuations to such heights without easy money.  We never would have had the U.S. housing boom without artificially low interest rates and without Fannie Mae and Freddie Mac promoting home ownership for everyone, whether or not they could really afford it.

“We never would have had the mortgage-backed securities debacle without easy money and low interest rates.  And, no one - especially foreign central banks - would have bought these and other sub-prime securities if they thought they could lose their shirts.

“Rather than allowing periodic recessions and bear markets to purge the excesses of each prior boom or bubble, the Fed stimulated the economy with massive doses of new credit, more injections of liquidity, and lower interest rates.  Neither the Fed nor the politicians in Washington wanted a recession - and hardly anyone complained when the Fed just printed more money.” says Nichols.

Like all ‘Ponzi Schemes’, investors lose out at the end, although those in and out again in the early stages can make massive gains.

As to the current ‘economic recovery’, Nichols, like a number of other economic observers is sceptical to say the least.  “Although many are beginning to talk about economic recovery in the United States, those that are seeing “green shoots” are looking through “rose-colored” eyeglasses” says Nichols ” . . . and there is significant risk of a “double-dip recession with further contraction and a second down-leg yet to come.  The economy is showing signs of life only because of massive injections of liquidity by the Fed and the various bailouts by the Treasury.” 

“We have never” says Nichols “in the economic history of the United States seen a period of rapid growth in money and credit nor an extended period of negative real interest rates that has not been followed by a declining dollar exchange rate and a rising inflation rate at home.” 

Nichols also notes as bullish for the gold price a changing attitude towards gold by Central Banks, with even those which have been among the sellers now seemingly reluctant to sell any more, while countries like China and Russia are now increasing their portions of reserves held in gold - and still have a huge way to go to get anywhere near the percentages held by most western Central Banks.

Indeed those Central Banks which did sell large percentages of their gold holdings are looking pretty foolish - perhaps most of all the U.K. which sold half its reserves under the guidance of current Prime Minister, Gordon Brown (who has since managed to spin his way to a reputation for financial prudence), at the nadir of the price - now known by U.K. economists as ‘Browns Bottom’.

There certainly seems to be a trend towards increased diversification of reserve assets away from what is seen as a dollar in decline, with gold probably being a major beneficiary.

The performance of the scrap market in this latest runup to $1,000 is also cause for positive thinking among the bulls with the responsiveness of the scrap market being much more subdued than the last time gold moved above this level.

Gold mine production is also seen as continuing to decline having seemingly peaked and with the main areas of production growth in countries like China and Russia which may well be buying up all their domestic production anyway, new supply to the market may be limited.

Another factor noted by Nichols is the introduction and growing popularity of gold exchange-traded funds which have changed the market in a very important way that is not yet well appreciated by many analysts and observers of the gold scene. By facilitating gold investment and ownership ETFs have brought significant numbers of new participants to the market - not just individuals but hedge funds, pensions, and other institutional investors. 

Nichols concludes that thanks to extremely expansionary monetary policy - and with a little help from ETF investors, central banks, and new or evolving markets - like China and India - the gold price will continue to move ahead.  He reckons $2,000 to $3,000 is on the cards in the next few years.

Posted Oct 02, 2009 06:56am EDT by Heesun Wee in Investing, Commodities, Recession

Crude oil is trading near $70 per barrel. That’s half of what it was worth in the summer of 2008, but more than double the four-year low of $32.40 a barrel reached at the end of that same year, according to Bloomberg.

So which direction is it headed?

Bill Strazzullo, chief market strategist at Bell Curve Trading, says oil is a moving target and predicts it will trade in a range between $55-$85/barrel.

Gold, however, is a different animal altogether. “Gold has the most potential here,” Strazzullo says. While bears are concerned about deflationary pressures, some high-profile hedge funds are scooping up gold futures and Strazzullo is going with the same theme. He predicts gold could soon hit $1200 per ounce, on its way to $1400.

And what about bear Peter Schiff’s comments that gold could climb to as high as $5,000 an ounce, if and when, the dollar crashes? “I don’t see anything that high at this point,” Strazzullo says.

FORT LEE, N.J., Oct. 6 /PRNewswire/ — The National Inflation Association today released the following statement to its members:

“Gold hit a new all time high today of $1,044 per ounce and it looks like this break out above $1,000 could be permanent. While this may be a new all time high in nominal terms, adjusted for inflation gold’s high in 1980 of $850 equates to $2,300 per ounce in today’s dollars. We believe the inflationary crisis we are rapidly approaching will be much worse than the inflation of the 1970’s. Therefore, $2,300 per ounce gold could be here sooner than anybody thinks is possible.

There are news reports today that Saudi states are meeting with countries like China and Japan in order to end dollar-based oil transactions and begin transacting oil using a new basket of currencies. It is the U.S. dollar’s status as the world’s reserve currency and the fact that foreign nations are forced to trade oil and other commodities in U.S. dollars, that has kept the U.S. economy propped up until now.

Up until today, foreign countries have been forced to hold huge U.S. dollar reserves which has allowed the U.S. to sell an increasing supply of U.S. Treasuries and thereby export its inflation to the rest of the world. Soon, foreign countries will no longer have a reason to hold U.S. dollars and there will be no interest in buying our debt. Almost all of the U.S. government’s deficit spending will have to be paid for by outright money printing by the Federal Reserve.

You will likely see the mainstream media proclaim a “gold bubble” soon, but the only true bubble we have today is a “dollar bubble”. In recent years, we have seen a rise of precious metals recycling companies like Cash4Gold that have encouraged Americans to take advantage of purported “high gold prices” and trade in their gold for U.S. dollars. Those who got suckered into trading in their gold for U.S. dollars will soon realize it was the biggest mistake of their lives.

The mindset of America is about to change as Americans wake up and realize how rapidly the U.S. dollar is losing its purchasing power. No longer will gold be looked at as a risky and speculative asset. Instead, there will be a rush into gold as the safest asset of all. The new mindset will be that you can’t afford not to own gold and you can’t own too much gold. You will be looked at as crazy if you don’t own gold.

During gold’s last bull market, gold prices rose from $35 to $850 for a gain of 2,329%. From gold’s low in 2001 of $255.95 per ounce, that same percentage gain during the current bull market would send gold to $6,217 per ounce. The other way to look at gold’s valuation is compared to the Dow Jones stock index. In 1980 the Dow Jones to Gold ratio bottomed at 1, meaning the price of gold matched the Dow Jones. If gold and the Dow Jones were to meet at the median of their current levels, we would be looking at $5,400 per ounce gold.”

Posted Sep 24, 2009 09:25am EDT by Aaron Task in Investing, Newsmakers

Unlike the “legitimate bull markets” of many foreign markets, Peter Schiff believes the U.S. is merely experiencing a “rally in a bear market,” and is lagging the rest of the world “for a reason.”

The worst is not over, according to Euro Pacific Capital’s Schiff, who predicts the Dow will fall another 90% from current levels when measured against gold.

A longtime dollar bear and gold bull, he foresees gold hitting $5000 per ounce “in the next couple of years,” and predicts the Dow and gold will trade on a one-to-one ratio vs. the current level of around 9.7-to-1.Schiff believes gold is currently “climbing a wall of worry” but will eventually become as hot as tech stocks in 1999 and start moving up $100 per day.

Schiff’s forecast is based on his view the U.S. dollar is going to collapse under the weight of our massive deficit and reckless policies of the Obama administration, which he compares to the massive spending programs of the 1960s, which paved the way for gold’s ascent in the 1970s. “Obama is making the same mistakes as Bush, but he’s doing them on a grander scale,” says Schiff, who is running for U.S. Senate in Connecticut as a Republican.

In addition to gold, Schiff remains bullish on Asia, most notably China. His firm recently launched the Euro Pacific Halter China fund, and Schiff believes “there’s a lot of value” in China and thinks the renminbi could “double or triple” when it’s depegged from the dollar.

That will make Chinese assets more valuable when measured in dollars, he says.

Schiff presciently called the bursting of the debt bubble and subsequent rout in financial assets, and his current forecasts may very well come to fruition. But Schiff’s confidence that the rest of the world (notably Asia) will prosper as the dollar loses its reserve status and America’s economy collapses seems dubious, at best.

Then again, Schiff is nothing if not (supremely) confident.