Potato Salad, or Is It Time to Start Freaking Out About Gold Supply?

by Sean Brodrick on June 3, 2013

Last week, Atna Resources (ATNAF: 0.1223 +0.0043 +3.64%) announced that low gold prices have “temporarily downsized” the ramp-up of underground mining operations at its Pinson Mine near Winnemucca, Nevada. Atna’s stock was punished mercilessly.

Pinson was expected to yield 50,000 to 57,000 gold ounces this year. Atna had hoped to increase that production to as much as 200,000 gold ounces annually. Nope. Not gonna happen, at least not at these prices.

But the Pinson Mine is small potatoes, right?

On Monday, Mexico’s Minera Frisco (MFRVF: 1.978 0.00 0.00%), owned by billionaire Carlos Slim, said that production at its gold and silver mine El Coronel was suspended due to “illegal” worker action. El Coronel produced 42,211 ounces of gold and 4,234 ounces of silver in the first quarter of 2013, and was planning on ramping up production.  Ramp-up? Nope, not gonna happen now.

But that’s still small potatoes, right?

On Friday, Roque Benavides, chief executive of mining company Buenaventura, talked to Reuters about Conga, the monster, $4.8 billion Peruvian gold project that is being developed by Newmont (NEM: 25.44 +0.25 +0.99%) .  Buenaventura is junior partner on the project. Protests flared up at Conga again last week. And these aren’t placard-holding hippies singing kumbaya. People have died in clashes with security forces at the Conga project. The project was suspended on November 30, 2011, at the request of Peru’s central government following increasing protests in Cajamarca by anti-mining activists. Benavides says that those protests, if they continue, could mean the end of the project.

Conga could have an average annual output of 580,000 to 680,000 ounces of gold and 155 million to 235 million pounds of copper during its first five years.

Now THAT’S big potatoes.

On Monday, an Indonesian government official announced that Grasberg, an Indonesian copper mine owned by Freeport McMoRan Copper and Gold Inc (FCX: 36.50 +0.43 +1.19%) will not be able to resume output for three months until a probe into a deadly tunnel collapse is completed. Grasberg is known as a copper mine – it’s the third largest copper mine in the world – but it’s also the BIGGEST gold producing mine in the world, averaging more than 1 million ounces of gold production each year for the past three years.

That’s HUGE potatoes!

Should we start to worry about gold supply now?

The word on the street is that it’s getting tougher and tougher to buy physical gold. Maybe that’s why people in Singapore were paying a premium of $7 per ounce for physical gold last week – a new record. And if you want to buy physical gold in Singapore in June – too bad! Orders put in now won’t be filled until July.

  • Maybe that’s why the Indian government just raised the import tariff on gold – AGAIN – on Sunday, in  desperate bid to clamp down on consumer demand for the yellow metal. And this is happening during an economic slowdown! What’s going to happen when India’s economy starts firing on all cylinders again?
  • Maybe that’s why sales of physical gold are hitting “astronomical” levels in Dubai. Expat Indians are rushing to buy gold in Dubai and ship it home, perhaps in a bid to get around India’s onerous new gold importation restrictions. Dubai merchants report that their sales have shot up by 400% after the recent price plunge.
  • Maybe that’s why sales of American Eagle gold bullion coins by the US Mint – despite dropping in May from April – are still on track to set a new annual sales record.

Maybe. And maybe that’s why gold is up more than $15 an ounce on the day as I write this. It tried to sell off back below $1,400 – not gonna happen. Not today.

The buyers are there.  The suppliers are getting thinned out. The question of the day may soon become “Got physical gold?”

What’s your answer going to be?

Miners look good too, of course – at least, the good ones do. That’s why I recommended two new gold miners to my Junior Resource Millionaire subscribers on Friday. Are those positions up? Yup! Are they likely to go higher? Hey, nothing’s certain in this world, but I think the odds favor this trade.

And let’s look at the Market Vectors Gold Miners ETF (GDX: 26.45 +0.47 +1.81%), a basket of leading gold miners.

GDX breaks out

(Updated chart)

Despite recent bad news from Newmont and Barrick Gold (ABX: 18.30 +0.28 +1.55%), which is having its own troubles with a multi-billion-dollar project, the gold miners seem to be breaking out. Maybe it’s because the gold they do own is suddenly looking a lot more valuable.

The real test will come at the 50-day moving average. Good luck to all.

If you’re doing this on your own, do your own due diligence.

 

 

.

{ 2 comments… read them below or add one }

Sharleen June 3, 2013 at 11:24 pm

According to Monex, Gold was selling for $1414./oz. today. If “people in Singapore were paying a premium of $7 per ounce for physical gold last week” why didn’t you tell us so we could all jump on a plane and take advantage of that???

Am I missing the understanding the meaning of “premium” or is this a typo?

Reply

Sean Brodrick June 4, 2013 at 8:48 am

“premium” means that people in Singapore were paying $7 over the spot price for gold bars.

Reply

Leave a Comment

I agree to the Terms and Conditions of this Website.

Previous post:

Next post: