Party Time For Gold

There’s often a little more seriousness and sobriety in the air in North America the week after Labour Day, as the nights get colder, students head back to school, 9-11 is commemorated and businesses start sketching out plans for the year ahead, and this year has been no different.

• When this mood seeps into the investing world, it plays to gold’s strength as a haven during troubled times. So it comes as no surprise that gold had a strong past week, flitting around US$1,000 per oz., and bursting into mainstream thought in the form of bullish gold stories on front pages of business papers and primetime TVnews segments.

This year, we’ve seen the new phenomenon of “gold parties” sprouting up in the U. S. These gatherings — the recession’s answer to Tupperware parties — are informal get-togethers in private homes where hard-pressed baby boomers and others — perhaps newly out of a job and behind on mortgage and credit-card payments — offer up their household jewelry over appetizers and small talk. A professional gold appraiser is on hand to test the goods and discreetly dole out cash on the spot.

The parties and other gold-scrap sources have made a big dent in gold’s supply-and-demand balance. Gold consultancy GFMS calculates that gold scrap supply in the first half of 2009 surged 38.5% to a record 880 tonnes, or 28.3 million oz., with much of it coming into the market in the extra-gloomy first quarter. This means scrap represented an astounding 41% of total gold supply in the first half of the year, with mine production accounting for 1,212 tonnes (39 million oz.) and official-sector sales chipping in 38 tonnes (1.2 million oz.).

Gold mine production is now bucking its long-term declining trend, with GFMS calculating that it shot up 7% year-over-year in the first half of 2009, driven by rising output at existing mines in Indonesia, China and Russia, and new mines in Australia, Canada, Peru and West Africa. Only South Africa, down 10%, showed a major decline in mine production.

• Uranium markets guru Ux Consulting Co. of Roswell, Ga., has tabled a glowing long-term forecast for worldwide nuclear-reactor usage and uranium oxide demand.

Ux reckons there will be “dramatic growth” worldwide in the use of nuclear power, led by China, India and Russia with the following growth curve: 435 reactors totalling 370 gigawatts-electric (GWe) operating in 31 countries today; 492 reactors totalling 428 GWe in 31 countries by 2015; 568 reactors totalling 517 GWe in 42 countries by 2020; and 697 reactors totalling 702 GWe in 52 countries by 2030.

Ux says Asia should surpass North America as the largest region for nuclear power in 2015, with Asian nuke power soaring 110% by 2020 over 2008 levels.

This all translates into a forecast for strong demand for uranium oxide in the years ahead, with Ux seeing global U₃O₈ demand powering higher from today’s annual level of 183 million lbs. to 250 million lbs. in 2020 and 325 million lbs. by 2030.

Ux stresses this “portends a critical need for increased global uranium production” given that primary mine production in 2008 totalled only 114 million lbs. with the rest supplied through inventories and secondary sources.

• There were a few hints that the sharp decline in the diamond sector has bottomed out and a recovery is coming.

Bloomberg reported that Rio Tinto will resume work later next year on the US$1.5-billion expansion of its massive open-pit Argyle diamond mine in Australia, which would result in underground mining getting under way in 2013, for a two-year delay. Expansion efforts had been largely suspended in January.

Diamond processing at Argyle was shut down for most of the January to June period, making for an 86% drop in first-half production. But production rates are now back at a full capacity that represented 20% of global diamond production in carats before the recession-induced wave of diamond mine shutdowns.

At home, Harry Winston Diamond saw its second-quarter revenues virtually halved to US$95 million but noted that “rough diamond prices increased substantially during the quarter with our own pricing ending at 50% above the low point in the first quarter.”

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