By Michael Lombardi, MBA
The fundamentals for higher gold bullion prices continue to impress. The table below illustrates the output from U.S. mines in the first six months of 2014 compared to the first six months of 2013.
In the below chart, we quickly see that since March of 2014, production of the precious metal has been quickly declining. Meanwhile, on the demand side of the equation, we see increased demand for gold bullion from the East—especially from China.
China recently launched a gold bullion market on the Shanghai Gold Exchange (SGE) for international investors. The goal of this exchange is to gain more control over the price of the precious metal in yuan (the official currency of China). China wants to have price control over gold bullion, just like the West does with their daily settings in New York and London.
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U.S. Gold Mine Output, First Six Months of 2014 & 2013
| Month | 2014 Output (Kilograms) | 2013 Output (Kilograms) | % Change |
| January | 17,800 | 18,500 | -3.78% |
| February | 16,400 | 17,200 | -4.65% |
| March | 17,500 | 18,700 | -6.42% |
| April | 16,500 | 17,900 | -7.82% |
| May | 17,200 | 18,800 | -8.51% |
| June | 17,700 | 19,400 | -8.76% |
| Total | 103,100 | 110,500 | -6.70% |
Month 2014 Output (Kilograms) 2013 Output (Kilograms) % Change
Data source: U.S. Geological Survey web site, last accessed October 7, 2014.
For seven years in a row, the SGE has been the top spot for gold bullion trading in the global economy. In 2013, the volume at the exchange reached 11,600 tons.
Quality gold bullion mining companies continue to offer significant value. Some of the most well-known miners are selling for pennies on the dollar. Goldcorp Inc. (NYSE/GG), selling for $23.00 a share for a market cap of just over $18.5 billion, is a great example.
If we just look at the proven and probable reserves of the company, it had 54.38 million ounces as of December 31, 2013. (Source: Goldcorp Inc. web site, last accessed October 7, 2014.) These reserves alone amount to $65.2 billion at a price of $1,200 an ounce of gold. And the company has massive silver reserves, too.
In respect to gold bullion, I would like to offer you these words from my esteemed colleague and gold guru, Robert Appel, BA, BBA, LLB:
“Wasn’t it just late 2011, three years ago, when gold bullion was selling at $1,900 an ounce and almost every advisory on the planet was bullish on gold?
What’s happened since then?
Well, the economic recovery has failed, if we take out the fake numbers. The number of people who have left the workforce is at levels not seen for 30 years. There is food and medical inflation, but few talk about it, and there has been a massive transfer of wealth from the middle class to the elites.
Europe and Japan have collapsed and ditto for Argentina and Venezuela. We have a potential world war in Ukraine and ISIS has taken back Iraq. It seems the U.S. president has recently preferred Iran over the Saudis, which jeopardizes the petro-dollar. Russia and China are taking active, ongoing steps to bypass the greenback, and Ebola is loose.
Against all this unpleasant backdrop, gold bullion is down almost 40%, sentiment is at depths never before seen, and the only two remaining bulls on the planet may be myself and Michael Lombardi.
And despite all the talk about ‘gold manipulation,’ the fact is that no sane trader wants to invest in a commodity that ‘mysteriously’ gets beaten up every single time a reversal seems close.”
But in the end, all manipulations, all imbalances, all extremes face regression to the mean.
The shares of quality gold bullion producers, which have been severely oversold, offer investors a great opportunity to buy low before they sell high.