The mainstream media has once again missed the bigger picture when it comes to precious metals. Since April, they’ve focused all of their coverage on demand for gold. Their reports almost always ignore the other side of the price equation: supply.
Many people assume that the supply for precious metals, particularly silver and gold, is infinite. If we need more precious metal, we mine more… right?
That might not be the case for much longer. Beyond the obvious challenges associated with mining — from exploration and verification of resources, to developing and permitting, to compliance with more and more regulations and increasing operational costs — there is another factor to consider. And that is resource nationalization and government interference.
Our business partners at Gold Bullion International recently sent me a list of mines that have experienced shutdowns over the past two years. Included on the list are the largest mines in the world. Be it extended shutdowns or new taxes, the effects will soon start to register in the physical market.
Here are a few from the list, all effected in 2013:
1) Indonesia — the largest gold mine in the world, the Grasberg Mine, owned by Freeport-McMoRan Copper and Gold (NYSE:FCX), had to cease operations for several weeks pursuant to a government safety investigation, after a terrible accident at a nearby training facility left 28 workers dead.
2) México — three gold and silver mines, including El Coronel, the country’s largest, have been closed due to labor conflicts. On top of that, Mexican officials approved a new 4 percent mining royalty in April.
3) South Africa — the news out of this country gets worse every day. Serious labor disputes threaten access to the world’s platinum supply.
Precious metals mining is truly a global effort. Limited access to metals coming from global mines would have a significant impact on prices. Supply is anything but infinite.
Originally written for the website of the Hard Assets Alliance, an industry association of trusted economic and investment research firms that fosters a better understanding of prevailing economic trends and offers investing advice. Open a SmartMetals™ investing account from Hard Assets Alliance here.