Gold Rushes and Shortages

October 08, 2009

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Richard is correct about the future prospects of gold, but this raises an interesting point.  As the demand for gold increases, what about the supply?  As these two charts demonstrate, the demand for gold exceeds current supplies.

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Despite this gap, gold mining operations were not immune from the 2008 crash.  For instance, American Century?s Global Gold, investing in gold mining operations around the world, dropped from $26.03 to $8.89 a share, while the price of gold continued to rise.  Regardless, Global Gold has climbed back up to $20, and even more impressive is the recent action among Canadian junior miners.  Gold stores that were unprofitable to mine when gold was $700 an ounce are now attracting major investment, which reminds one of the last major surge in gold mining: 1975 - 1980.  Attempting to pump up enthusiasm for the mining sector, Lorimer Wilson recently wrote:

Back in the mid- to late 1970?s, as gold went up from its 1972 low of $60 to $850 in 1980 (and silver to $50), gold and silver stocks realized absolutely amazing gains:

Lion Mines ? 1975 price: $0.07 / 1980 price: $380 i.e. an increase of 542,757%.
Azure Resources - 1975 price: $.05 / 1980 price: $109 i.e. an increase of 217,900%.
Wharf Resources - 1975 price: $.40 / 1980 price: $560 i.e. an increase of 139,000%.
Mineral Resources - 1975 price: $.60 / 1980 price: $415 i.e. an increase of 69,067%.
Steep Rock - 1975 price: $.93 / 1980 price: $440 i.e. an increase of 47,212%.
Bankeno - 1975 price: $1.25 / 1980 price: $430 i.e. an increase of 34,300%.

Will we see another such surge in mining to accommodate the growing demand for gold?

 

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