What does the CPM Group’s data show regarding new mine production and other gold supply and demand fundamentals?

Mine production actually has been rising, very slowly. The problem with mine is that the pipeline of new projects and new capacity has been cut in half. If you go back to January 2013, there’s about 22 million ounces of new production capacity slated to come on stream between 2013-2016 globally, a lot of it in China by the way. By September, it was about 11 million ounces. About half of the new projects that were under development have been stopped. They might have been deferred indefinitely, or cancelled, or stretched out, or pushed back, or just set aside. So mine production is growing, slowly but steadily. It’s only a portion of supply.

Another big portion of supply is secondary recovery mostly from jewelry and decorative items, but also from electronics. It has fallen about 18% last year, because as the price of gold fell people stopped selling their jewelry for the gold. They’re waiting to see where the price goes. If the price ever rises again, they’ll come back as buyers. So that decrease in secondary supply has more than offset the increase of mine production. Total newly refined supply has been declining and probably will continue to decline.

Fabrication demand actually picked up a little bit last year. With the lower price, the biggest form of fabrication demand is jewelry. Jewelry is extremely price sensitive, both on the manufacturing level and the consumer level. When the price of gold rises, jewelers make pieces of jewelry with less gold in them so that they can sell jewelry at the price point that consumers want to buy jewelry. As the price has fallen, they’ve increased the gold content of the jewelry so that you’re now seeing more gold go into the jewelry, and consumers are buying more jewelry.

So fabrication demand is rising. Mine production is rising slowly. Secondary scrap is off. Total supply is off. Central banks and private investors are looking at the market and they’re saying, “We’re still very much interested in buying gold, but let’s see the price stabilize or start to rise before we really step up purchases again.”