Saturday, April 23, 2005

Why Gold Bull Market is different to 1970s

There is no doubt that we are in a gold bull market, however there are many key elements that make it vastly different to the gold bull market of the 1970s.

Jim Puplava reported on the differences in his News Hour on this week.

Jim says the big differences this time around are:

1. Gold Demand

Global gold demand is growing faster than supply and its not just demand in the US and Europe. Gold demand is growing in Asia, China, India, The Middle East and in Latin America especially due to the currencies crisis that occurred there in recent times.

Just last week we reported on a surge in demand for gold bars in Asia in the gold price news.

Bob's Gold Price column has also posted an article on gold demand vs supply this week.

2. Gold Production

Gold production was down 4.4% globally and no doubt gold supply will be down this year also. The reason is we have been in a gold bear market for the past 18 years and many of the weaker gold mining companies went out of business or were taken over, only the large strong companies survived.

The environmental movement is much stronger today than in the 1970s and is very anti gold mining. As a result the time it takes for gold mines to start production from the date that they discover gold is now as much as 7 to 10 years.

In the gold bull market of the 1970s there was plenty of gold supply and the gold mining companies where growing their production every year as gold demand increased. Today that situation doesn't exist.

The mining industry has not made any major new gold discoveries for some time. Frank Bullis did a study of all the worlds major gold deposits in 2002.

Franks Bullis's study found that there were very few large gold fields:

3 with 10 million or more ounces of gold.
7 with 5 million ounces of gold.
5 with 4 million ounces of gold.
2 with 3 million ounces of gold.
2 with 2 million ounces of gold.
3-4 with 1 million ounces of gold.

In the 1970s there was a lot of gold discovers and gold exploration and those gold discovers were mined in the 1980s. In the 1980s Barrack Gold and Newmount the largest gold mining companies were only producing 1 million ounces a year and that was considered to be significant.

Currently Newmount the worlds largest gold miner is producing 7 million ounces a year but its not going to increase to 10 million during this gold bull market, in fact it is likely to decrease to 5 or even 4 million by the time this gold bull market is over.

Most major gold producers have been declining and this year most large gold producers have announced their production will decline by 10 to 15%.

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