Article: Gold and Silver to Greater Heights

April 10, 2008

Normally when a commodity rises in price, the supply increases, as producers put their product on the market to take advantage of the higher price. In the case of gold, we see the opposite to that trend. In the year 2000, just before the current bull market in gold began, the world's mines produced 2,573 tonnes. (Some sources quote 2,604 tonnes). In 2007, after gold increased in price from $260 to $900, the supply of new gold actually DECLINED by 129 tonnes, to 2,444 tonnes. South Africa, historically the world's largest supplier of gold, is now producing the lowest number of ounces in 84 years, and has been overtaken for first place by Red China. (Source Gold is scarce, and getting scarcer!

Meanwhile the world's money supply, the medium of exchange that is used to purchase gold, is increasing dramatically. Money supply in over a dozen major economies is increasing at double digit rates.

According to the World Gold Council, demand for gold is running 30% above last year. It's no wonder! While the gold supply is decreasing, the amount of paper and digital money is increasing. It's like going to an auction, where the number of artifacts is limited, and upon entering the auction hall, the auctioneer hands out hundred dollar bills. Guess what is going to happen? Prices will rise!