You Can Always Go to Gold

With the onset of the great commodities bear market in the early 1980s, capital for mining and exploration evaporated. By 1991, very little new money was being raised by gold companies-- neither for maintenance and development of existing mines, nor for exploration of previous discoveries.

While a small flurry of gold excitement in 1993 helped gold jump back to $400 and excited gold bugs that the bear market was over, the flurry was dashed in 1997 as the bull market in stocks reached its zenith -- according to market breadth -- and the gold rally was eviscerated by the discovery that the Indonesian discovery by Bre-X had been a complete Fraud. http://en.wikipedia.org/wiki/Bre-X

Following nearly 20 years of underinvestment, annual gold production peaked in 2001 and has been declining for most of the past six years. Production growth in China and other countries, plus significant capital raises for mine expansion and new projects should propel production back to the 2001 level and beyond this year and next. Production declines in South Africa have been very significant, declining 8% in 2006 alone. South Africa used to account for fully two-thirds of all gold production; now it has declined to just 11% of global supply.

2006 Mine Production

While gold supply is stretched, demand is increasing, especially in China and India. As the Chinese and Indian economies have grown more than tenfold in the last 20 years, citizens have accumulated ever more wealth. For the average upwardly mobile Asian family, there are few safe options for capital preservation. Citizens have often chosen to keep their accumulated wealth in gold, often in gold jewelry.