Gold faces ‘global supply crunch’
Gold faces a “supply crunch” that could help propel the price to $2,000, a leading gold investor has said.
By Richard Evans
19 Feb 2013
Gold miners have responded to recent falls in the price by concentrating on the highest quality deposits, scrapping extraction of more marginal material. This will cause a “significant decline” in global production of gold, according to Angelos Damaskos, who runs the Junior Gold fund.
“A shift in gold market dynamics in the near future could result in a supply crunch,” he said.
“Investors have recently been disappointed by the gold miners’ inability to control costs. With miners’ profitability naturally at risk if there is a decline in the gold price, the sector has experienced a sell-off.
“The response of management is to prioritise cost-control. An effective and immediate way of reducing costs is called ‘high-grading’; essentially all mining teams are now focusing on the highest-grade, most profitable operations at the expense of production volume.”
As a result, marginal deposits are being scrapped from miners’ business plans and unprofitable operations are being shut down, Mr Damaskos said. “This strategy will increase miners’ profits and also inevitably cause a significant decline in global production.”