Gold Mining Outlook in 2008

Fueled by tremendous demand from Asia and South America and decreased production since 2001, gold mining has crested $1,000/oz. in 2008 making it a huge winner. Yet, while this sounds like a great investment for stock brokers, mutual funds and gold mining conglomerates, mining production has decreased for several years straight and there is not enough infrastructure to keep up with the increased demand from the industrializing world. These factors present huge challenges for the gold mining industry.

Whereas the Columbus brothers proclaimed to all of fifteenth century Europe that gold virtually was seen "growing up right out of the ground" back when the new worlds were being explored, many industry insiders frequently discuss the fact that virtually all of the low-lying fruit has now been plucked. This means that new technologies that are typically very expensive must be employed in order to keep production consistent. However, new technology always requires more power, more machinery, more mills, more chemicals and reagents, and ultimately more resources. Often times these mining processes cause mining operations directors to sweat things like rising fuel costs. Even smaller gold mining power plants can easily consume over 100,000 litres per day of diesel fuel oil. With rising costs in oil, the cost to produce just  one oz of gold could have nearly been cost prohibitive - if gold prices had stayed static.

For instance, as one of the world's largest gold producers, China remains a net importer of gold, while demand increases at an alarming rate in line with rapid industrialisation. Similarly, demand from India is also extremely high.

Exchange Traded Funds in the US and elsewhere have already placed strong upward pressure on gold's price, which has increased 40%, causing some industry executives to admit that it is quite possible that the world gold supply could be so dislocated as to simply run out.

USP&E: Powering Business. Empowering People.