Just as the outlook for financial assets became too rosy in the late 1990's, the outlook for the metals got too gloomy. In 2002, gold prices broke out of the depths of a 22-year bear market and they will not likely be as cheap again this decade with much of the credit going to the consolidation that has taken place in the mining industry. In early 2002, Newmont Mining won the right to buy Normandy Mining of Australia for $4.56 billion in cash and stock, becoming the world's largest gold producer. On August 5, 2003, the world's second largest producer, AngloGold Ltd., bought Ashanti Goldfields for $1.09 billion. In 2001, Barrick Gold bought Homestake Mining to become the world's third largest gold mining company and then on October 31, 2005, announced its bid for Placer Dome, the world's fifth largest gold producer. This is the kind of activity that leads to more disciplined production decisions and paves the way for more profitable gold prices.

The heaviest burden on gold in the past few years has come from central bank sales. In September of 2004, a new five-year agreement limited sales to 500 tons per year. Potential sellers are Germany, France, Switzerland, Spain, and possibly Italy. In 2004, central bank sales dropped 19%. There has also been talk that the International Monetary Fund may sell gold to provide relief to the creditors of some of the world's poorest countries.

On August 23, 2005, the Chamber of Mines said that South African gold production in the second quarter of 2005 was down 18% from a year ago. And that is after 2004 production was the lowest in 73 years. A strong rand, increased mining costs, and the consolidation of mining companies mentioned above all played a significant part. On the demand side, a growing world economy and concerns about rising inflation have been supportive to prices. On November 17, 2005, the World Gold Council said that world demand was up 16% through the first three quarters of 2005 from a year ago.

But "commodities are an asset class for the first time in history" - something hedge funds and other investors can no longer ignore, says Barron's Roundtable member Marc Faber, an early bull on gold. "I don't think this is a late-cycle movement," he adds, noting that commodity cycles are typically long - from 45 to 60 years from peak to peak. The last peak was in 1980, meaning the next one could still be at least 20 years away...

Of course, the economic winds could shift. If the U.S. were to get its financial house in order and dramatically reduce its debt, or if there were unforeseen strength in the dollar, gold would almost certainly reverse course. But gold bugs are hardly counting on that.

Global gold production is set to decline dramatically over the next four years and this is set to generate a scramble for gold ounces, DRDGold Chief Executive Officer Mark Wellesley-Wood said in the company's latest investor newsletter released on Tuesday.

"There are 29 new gold mines in the pipeline right now and even if all these are developed, it would require a further seven projects every year to make up the deficit," he added.

Iafrica.com. November 15, 2005.

South African gold output was likely to fall to an 80-year low of 300 tons in 2005 down from 346 tons in 2004, which was the lowest level since 1931, Andisa Securities gold analyst Dr Dave Davis said on Monday.

From 2006, South African gold output was likely to stablise at about 300 tons as a number of gold mining projects came on line like the South Deep mine, AngloGold Ashanti's Moab Khotsong mine and new gold mining projects that Harmony Gold was developing, Davis said at the London Bullion Market Association Precious Metals conference.

In 2002, South African produced 400 tons of gold.

Iafrica.com. November 14, 2005.