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Investors Will Have To Work Harder

Topics [ invest in gold spot price ]


Mineweb had two interviews yesterday in which two different analysts came to the same conclusion on the state of two different markets (gold and silver). Both saw increasing surpluses in the two metals, which meant increasing amounts of money needed to flow into the metal if they are to see prices increase.

By surplus, they are referring to (mine + scrap) supply is greater than (jewellery + industrial) demand. The difference is absorbed by investors. The chart below shows this difference for gold in tonnes on a quarterly basis.

Investor demand increased dramatically after the financial crisis in 2008.

Philip Klapwijk (GFMS) said that they were projecting “a fundamental surplus in the market which in dollar terms could be north of $130 billion” and a substantial increase in “the call on the market and the amount that needs to be committed to the market to clear this surplus”.

Philip feels that this is going to become unsustainable and unless “there is going to be a massive sea change in terms of those investors that are involved in this market and a massive broadening of participation, there will come a point where the usual suspects won't be enough to buy all this gold, and the price is going to fall.”

On a positive note he believes that speculative investors “are probably not as leveraged as they were at the end of the third quarter, and therefore the vulnerability of gold to sell off when the market is in risk-off mode is not as great as it was at times last year.”

David Jollie of Mitsui sees a similar situation in the silver market, with demand affected by a weak economy but mine supply up resulting in “a softer physical market than you have had before” which will require “a lot more effort from investors than they had to make last year in order to achieve the same highs.”

David “see[s] a medium term outlook which is not that negative for the price but in the short term there has to be some concern that the price might fall.”

Download today’s full Blog Watch (pdf 344kb) for more reviews, including:


Blogger Jesse has a short piece on COMEX registered silver inventory dipping below 30 million ounces, which he sees as a “dangerous and volatile situation”. I’m not so sure.


FT Alphaville has a piece on an IMF Global Financial Stability Report. Chapter 3 of that report examines the roles of safe assets in the financial system. You’ll be glad to know that gold is included as a “safe asset”.

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