Editorial: 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 TV-news segments.

And this year, we’ve seen the new phenomenon of “gold parties” sprouting up in the U.S.

These gatherings, described by many as 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.).

Meanwhile 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.

It’s a testament to gold underlying strength that its price has hit record highs despite this dramatic surge in scrap and mine supply.