Endeavour Silver Corp (EXK)

[Gregory_]

From the article:
"Nations bought 254.2 tons in the first half of 2012 and are likely to add close to 500 tons for the year as a whole, the London-based World Gold Council said earlier this month."

500 metric tonnes = 16,075,373.3 troy oz

There is a chart of the World Gold Reserves in million troy oz.


According to this chart, the world sits at 1,005,000,000 troy oz. Which is actually fairly low, in historical comparison to much of the last century. This means that we were expected to increase the world reserves at about:

16,075,373.3 troy oz added in 2012 / 1,005,000,000 troy oz in world reserves = 1.6% increase

Any decrease in supply will contribute to higher prices. Therefore, the fact that many are buying rather than selling is significant. Of course, it is not clear if China is included as an estimate in the above quote. I would presume not. Therefore, the quote may be a poor source to use for this exercise. However, with that said, is 1.6% a year enough to really make a difference?

The highest the reserves have every sat, according to the graph, is 1,233,770,000 in June 1966. To reach that high again at this pace, it would take 14+ years. That seems significant to me because that level was maintained at a time where the gold value was highly respected, to my understanding. There is only so much gold in the world, of course. Do we really only have around 233 extra million oz floating around right now? And if all of that is purchased over the next 14 years, would that mean significantly higher prices?

I would say yes. However, it is unclear how much extra supply is really floating around out there. Most people would say the largest contributor to supply and demand are the central banks. If that is true, this is probably on the mark, but the below remarks on mining supply may alter your perspective.

Here are some supply figures. It is interesting to note that annual mining supply is much higher than central bank annual demand.

---------------------------
From Kitco:
News Release Link

"Rohit Savant, a senior commodities analyst with the consultancy CPM Group, said he sees gold-mine supply rising 4.3% from 80.5 million ounces to 83.9 million ounces in 2013."

"Bart Melek, director of commodity strategy with TD Securities, also forecast rising gold-mine supply in 2013. Melek said believes supply will grow by roughly 1.5% this year mainly from projects in Ontario, Indonesia and the Dominican Republic, coupled with miners trying to control cash costs."

"'I factor it in (South Africa),' Melek said. 'You can’t predict natural disasters or labor strikes when and where but there is a fairly decent rate of these events that happen randomly. Out of a huge sample, you can always distinguish a rate.'"

---------------------------

Does this mean that the central bank purchases are to be ignored? I do not think so. I still believe prices will rise, at least, this year. I want to closely watch the increases in mining supply over the next few years. I am concerned that we will see a significant increase in mining supply as the years progress. I cannot be certain that this is negligible or significant at this stage.