Barrick Gold shuts hedge book over world gold supply

Posted Nov 12th 2009 1:00PM by Mark Fightmaster
Filed under: Barrick Gold (ABX), Commodities

Late in the evening of November 11, The Daily Telegraph reported that Barrick Gold (ABX) has shut its hedge book because the world gold supply is running out. Barrick Gold's president, Aaron Regent, told the periodical that global output has been shrinking at a pace for nearly 1 million ounces a year since the start of the decade.

At RBC's annual gold conference in London, Regent noted that "There is a strong case to be made that we are already at 'peak gold.'" Regent believes that production peaked around 2000 and has dropped ever since, he adds that Barrick Gold believes the decline will continue because "It is increasingly difficult to find ore."

As for ore, grades have dropped from 12 grams per tonne in 1950 to nearly 3 grams. This is the reason that gold has hit record prices, following the law of supply and demand. On November 10, gold hit an intraday high of $1,118 an ounce as it certainly appears that foreign countries are losing faith in the viability of Western paper money and debt. Here is the thing about gold: it remains a "tiny fraction" of China's $2.3 trillion in foreign reserves. If supply continues to wane and China's demand is set to grow, what is going to happen with gold, kiddies? That's right, its price should go higher.

Remember, supply and demand is a law, and laws aren't always followed. In fact, the only law that I can think that everyone obeys is the law of gravity. Let's see what kind of traction this story gets in the market; it may push gold higher, but that is no certainty. Moreover, this story could serve to add to the weakness of the old greenback.

Tags: ABX, American dollar, Barrick Gold, China, dollar, gold, gold supply, inthenews