Gold Production in South Africa Plunges to 90 Year Lows

By: Mark_OByrne

Gold fell yesterday on profit taking and ended the day down 2.3% at $969.25/oz (silver fell by 3.1% to $13.98/oz).

A short term correction was expected and warned of and this correction was necessary after gold becoming overbought in the short term. Gold had rallied over $100 (from $890/oz on February 9th to just over $1,000/oz on February 20th) or some 12% in less than two weeks. Such an appreciation in any asset class in such a short period of time is unsustainable.

Much of the selling was technical in nature as gold had become overbought and momentum players may have tightened stops loss levels and liquidated long positions after the previous day’s slightly lower close. Leveraged momentum traders and trend followers are influential in the short term but in the medium to long term, gold’s price will be dictated by the fundamentals of supply and demand.

Peak Gold in South Africa
In this regard, the news from South Africa that annual gold production had plummeted 13.6% to 220 tonnes - levels last seen in 1922 - will make the gold bears nervous.

South African gold output has been falling since 1970 when annual production was over 1,000 tonnes. Production peaked at this time and has been falling steadily and sharply since.

While the Eskom power issues contributed to the annual decline last year – the elephant in the room is that South African gold mines are aging and producing lower and lower ore grades all the time and this is leading to plummeting production as seen in the chart below.

While other countries have increased their gold production (notably China – see table) there are increasing fears about the declining supply of gold globally - the world's mine gold supply has been falling in recent years and it fell to 2,385 tonnes last year, down 3.6 per cent from 2007 (and this despite the rise in prices in recent years).

In the light of the strong fundamentals, this is another healthy correction in the gold market and merely the pause that refreshes as investment demand is set to remain strong for the foreseeable future while supply remains tight, especially as central banks are increasingly reluctant to sell their gold reserves.

Support is at the $930/oz to $940/oz level (previous resistance) and we may need another period of consolidation prior to challenging the record high in 2008 of $1,030/oz.

By Mark O'Byrne, Executive Director

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

Mission Statement
Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
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.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.