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South African Gold Production Slumps by 10% Driving Gold Price Higher

Commodities / Gold & Silver Jun 19, 2008 - 10:30 AM GMT

By: Mark_OByrne

Commodities Gold closed at $891.30  in New York  yesterday and was  up $6.90  and silver closed at $17.31,  up 26  cents.  Since then g old has again traded in a range between $88 5 and $89 5 in Asia n and in  early European trading this morning .

Gold rose in early trading in Europe when oil prices rose on news that Anglo-Dutch oil giant Shell  had halted production at a major offshore oil facility in Nigeria because of a militant attack . It has since given back those early gains and dollar strength this morning seems to have led to a sell off in gold.


While oil has also since given up its early gains it is important to remain aware of the risks to oil production in Nigeria. Violence in the southern Delta region has reduced Nigeria's total oil production by a quarter since January 2006. In a separate development Thursday, the Movement for the Survival of Ogoni People (MOSOP) reported an oil spill at a disused Shell facility in the Ogoniland region of the Delta. MOSOP spokesman Bariara Klalap  said that  crude oil had seeped into surrounding villages and called on Shell to contain the spill. Community unrest sparked by poverty and pollution from oil production forced Shell to halt its activities in Ogoniland in 1993.

With the supply demand balance very tight, geopolitical risk remains significant and ever present in the oil markets as seen in Nigeria this morning. Supply disruptions from some critical oil producers such as Nigeria, Venezuela or Iran will likely result in markedly higher oil and consequently gold prices. Hurricane season could also negatively effect oil and gas fields in the Gulf of Mexico.

South African Gold Production Down Sharply
The gold market, like  the oil market is facing similar supply issues despite robust demand . This morning comes the news that South African gold output fell 10.1 percent in volume terms in April compared to the same month last year. South African gold production has  fallen sharply after state-owned power utility Eskom struggled to provide sufficient power to mines, following a near collapse in the electricity grid in January, which led to a five-day countrywide mine shutdown.

Eskom have admitted that the power and electricity problems are a major challenge and may take years to rectify which would likely result in further falls in gold production in South Africa.

In the medium to long term, the combination of strong international safe-haven demand and decreasing production of and supply of gold in most major producers and particularly in South Africa will likely result in gold going significantly higher in the coming months.

Importantly, South African production of gold was over 1,000 tonnes per annum in 1970 and has been steadily declining to nearly 250 tonnes per annum today.

Similarly, in Australia, gold production  recently  slumped to its lowest level in almost 20 years. Mining consultant Surbiton Associates says gold output for the March quarter was down 10 tonnes to 53 tonnes. Gold production in March 2008 fell to seven tonnes, 12 per cent less than the comparative period for 2007, while the total output for the quarter was 53 tonnes, a drop of 16 per cent on the previous quarter.

Australian gold production reached a peak of 314 tonnes in 1997. In 2006, Australia's gold production fell 5 percent to 249 metric tonnes from 263 tonnes in 2005. This was the worst production performance in 13 years. Since 1997 production has declined largely due to a lack of new discoveries.

Scientists have acknowledged the reality that the world's finite natural resources, including its precious metals, are being used up at an unprecedented rate. The respected New Scientist has reported on it, especially in its 'Earth Natural Wealth: An Audit' report. The Wall Street Journal has also reported ( 'A Metal Scare to Rival the Oil Scare' ) how man's voracious demand for the earth's natural resources may lead to us 'running out' of some of them: "Scientists who have tried to estimate how long the world's mineral supply can meet global demand have made some gloomy predictions."

This is especially the case with the unprecedented movement of billions of people in BRIC and other emerging economies moving from 'peasant class' to middle class in one of the greatest social and economic transformations the world has ever seen. In the same way that peak oil has been recognised in recent years so too will the reality of peak  gold  be realised in the coming years when the price of the earth's precious finite metals , such as gold,  likely  rise to multiples of their current value.

Silver
Silver is trading at $1 7. 20 /1 7. 26 per ounce (1 2 00 GMT).

PGMs

Platinum is trading at $20 69 /20 79 per ounce (1 2 00 GMT).
Palladium is trading at $4 6 5 /4 70 per ounce (1 2 00 GMT). 

By Mark O'Byrne, Executive Director

Gold Investments
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Dublin 2
Ireland
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Email info@gold.ie
Web www.gold.ie
Gold Investments
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United Kingdom
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Email info@www.goldassets.co.uk
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Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

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We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

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