Gold investing: Shortage could push prices even higher

Last week, Barrick Gold (symbol ABX on Toronto) said that its research shows that global gold production has been falling by roughly one million ounces a year since 2000. Barrick is the world’s largest gold-mining company.

Moreover, the company says that poorer-quality ore has driven down total global mine supply by roughly 10%. In Canada, the U.S, and Australia, for example, average grades of mined ore have fallen to nearly three grams per tonne. That’s down from roughly 12 grams per tonne in 1950. What’s more, Barrick says that South Africa’s gold output has fallen by about 50% from its peak in 1970.

How to profit from a potential gold shortage

Gold has been on a strong upswing since it broke the $1,000 U.S. an ounce mark in September. It has been setting new records since. Yesterday, it hit an all-time high of $1,147.45 U.S an ounce.

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We feel that gold could well move even higher. That’s because low interest rates and government stimulus spending are likely to spur inflation. Shortages would only add to the upward pressure on gold prices. These factors could prompt many investors to seek security by gold investing.

However you choose to approach your gold investing we feel that, as with any speculative investment, it should make up no more than a very small part of your overall portfolio.

As well, we think you should limit your gold investing to gold-mining stocks. Like bullion, gold-mining stocks benefit from increases in the price of gold. But unlike bullion, which comes with a continuing cash drain for management, insurance and so on, they have the potential to generate income.

And we feel that the best way to profit from gold investing is to look for stocks with sound production, positive cash flow and strong prospects.

One such gold investing choice is Newmont Mining (symbol NEM on New York), a stock we cover in our Canadian Wealth Advisor and Wall Street Stock Forecaster newsletters.

Newmont Mining is a long-time gold investing favourite

Newmont’s high-quality mines should last for decades, and its costs are coming down. As well, most of its production is in politically stable areas, such as North America and Australia.

Newmont continues to build a strong portfolio of new properties to replace its current reserves. It’s currently evaluating whether to move forward with its Minas Conga copper/gold project in Peru, which the company believes could contain more than 6 million ounces of gold and about 1.7 billion pounds of copper. Newmont expects that a mine on the site would last between 15 and 20 years.

We’ll continue to monitor the dramatic upturn in gold prices and update our buy/sell/hold advice on Newmont in our Canadian Wealth Advisor newsletters and hotlines. Click here to learn how you can get one month free when you subscribe today.