April 10/06: Unless you've studied the supply/demand stats for Gold very closely, you might be unaware of just how big the supply/demand deficit currently is in the Gold market.

As with any commodity, when demand is greater than supply, the value of that commodity rises because Buyers out-number Sellers... and that's what is currently happening with Gold.

Previous to a couple days ago, I knew that yearly Gold demand was running greater than newly mined supply, however, until I studied the stats very closely a couple days ago, and crunched the numbers/percentages for myself, did I quickly realize that I had seriously under-estimated the global Gold supply deficit... I quickly came to the conclusion that probably the number #1 reason why Gold is increasing in price may be due to how under-supplied the Gold market is... yes, inflation, political uncertainties, war, fiat currencies, debt & budget deficits are all fuelling the price of Gold higher... but after you see the hard supply/demand stats for yourself, I think you might also agree that the biggest fundamental driver of higher Gold prices may be the yearly Gold supply deficit... because frankly, I was shocked at numbers.

Check out the yearly demand figures for global Gold consumption...

yearly Gold consumption was 3,504 tons in 2004, and 3,754 tons in 2005
(Source: World Gold Council)

Now look at yearly global Gold production...

The last year I was able to obtain information for global Gold production (2004) shows global Gold production was only 2,461 tons per year (and in a declining trend).
(Source: World Gold Council)

Now, look how global Gold production peaked in 2001...

Global Gold Production has been in a decline for the past several years.
(Source: World Gold Council)

So, if you take the above approx. stats (3,700 tons - 2,400 tons) = 1,300 tons / 2,400 tons = 54% supply deficit.

It is true however, that there is additional Gold supply that comes onto the market from industrial reclamation and Central Bank Gold sales, however, even when these 2 additional sources are added in, the net result I calculate is still approx. a 37.5% supply deficit.

However, what is getting harder to quantify these days is the Central Bank Gold sales... as the current Central Banking trend may be making the supply deficit even bigger, because the year 2005 marked a reversal in trends for some Central Banks, because during 2005 some Central Banks announced their intent/desire to become Gold buyers again... here's a few links regarding the recent turning point in some Central Bank Gold buying...

> http://www.kitco.com/ind/Hommel/dec122005.html
> http://www.dailyreckoning.com/Media/PR120705.html
> http://www.gata.org/Wener.html

But, what I find almost as amazing as the huge yearly mine supply deficit in Gold is; the fact that very, very few Investment Analysts are talking about the huge Gold supply deficit, in fact, most Investment Analysts seem completely IGNORANT about Gold's supply/demand fundamentals, as most of these Analysts say Gold is rising simply because Gold is currently seen as a currency hedge, inflation hedge, or a safe haven investment... I mean, when was the last time you heard an Investment Analyst on TV talk specifically about Gold supply/demand fundamentals and provide stats to back it up?... THE FACT OF THE MATTER IS; THERE'S NOT ENOUGH NEW GOLD MINED EACH YEAR TO MEET NEW YEARLY DEMAND, AND BY A VERY WIDE MARGIN.

And on top of the widening supply/demand deficit for Gold is a fact that compounds the problem even further; the fact that Gold Mining companies have done very little new Gold exploration over the past 2 decades due to low Gold prices... that, when combined with the stricter environmental standards these days, and you have a situation where new Gold discoveries will take between 7 - 10 years to develop to an active mining stage... which compounds the current Gold supply deficit further.

I highly recommend listening to this audio interview for expert opinions regarding the problem Gold companies face in fixing the global Gold supply deficit problem, and the implications facing the Gold industry.

So, when you add in the double digit Gold consumption growth coming from Asia, India, and certain Middle Eastern countries, topped off with inflation concerns, political instability, record US debts and deficits... then sealed off by a huge yearly Gold mine supply deficit and declining global Gold production... I think the formula/conditions are in place for much higher sustained Gold prices... in fact, one of the most complete/best investment analysis/research report available on the Gold market today has a mid-term target price for Gold at $900.00 US per oz ... with the potential for a spike to $2,000.00 per oz or higher... in fact, I think the only reason why Gold prices aren't substantially higher than they are today is because most of the investing public are simply unaware of just how rare Gold, and how big the yearly Gold mine supply deficit have become.