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Peak Gold
pmcollectour
Posts: 1,211 ✭
Peak Gold is Real
Despite record nominal gold prices, gold miners just can't crank out enough of the stuff. Between 1997 and 2001, miners "high-graded" (mined ore with the highest grades) just to keep the lights on, as gold prices bottomed and the yellow metal was reaching the peak of its secular bear run.
Ever since, as gold prices have steadily climbed, these miners have been shifting production to gradually lower grade ore, leading to ever-lower output. In fact, in just the past five years, the average recovered grade has declined a full 30% - dropping from 1.8 grams per ton down to 1.3 grams per ton.
And the grades of replacement ore being found are now averaging about 0.60 grams per ton, meaning twice as much ore has to be found just to replace gold being produced at current grades. Gold has become so valuable that millions of tons of what was formerly considered waste rock are now being recategorized as gold reserves.
Economic theory tells us that as demand increases, so does supply, which helps to contain prices. In the case of gold, however, that just isn't happening. There's simply not enough new gold being found to replace consumed reserves and to allow for higher production levels.
Over the past year, gold production has only managed a 3.0% increase, despite a 20% increase in price.
Despite record nominal gold prices, gold miners just can't crank out enough of the stuff. Between 1997 and 2001, miners "high-graded" (mined ore with the highest grades) just to keep the lights on, as gold prices bottomed and the yellow metal was reaching the peak of its secular bear run.
Ever since, as gold prices have steadily climbed, these miners have been shifting production to gradually lower grade ore, leading to ever-lower output. In fact, in just the past five years, the average recovered grade has declined a full 30% - dropping from 1.8 grams per ton down to 1.3 grams per ton.
And the grades of replacement ore being found are now averaging about 0.60 grams per ton, meaning twice as much ore has to be found just to replace gold being produced at current grades. Gold has become so valuable that millions of tons of what was formerly considered waste rock are now being recategorized as gold reserves.
Economic theory tells us that as demand increases, so does supply, which helps to contain prices. In the case of gold, however, that just isn't happening. There's simply not enough new gold being found to replace consumed reserves and to allow for higher production levels.
Over the past year, gold production has only managed a 3.0% increase, despite a 20% increase in price.
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Now, the world's biggest gold producer - Barrick Gold (ABX)
Aaron Regent, president of the Canadian gold giant [Barrick], said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run.
"There is a strong case to be made that we are already at 'peak gold'," he told The Daily Telegraph at the RBC's annual gold conference in London.
"Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore," he said.
The peak resource depletion graph looks like this: typical peak resource graph Go ahead and spend a moment with the article, it takes less than 5 minutes to read and grok the graph at the bottom of the page.
All non-renewable resources will follow a pattern like this...non-renewable resources that are consumed, that is. Gold is not really like oil as it is not really consumed on any type of large scale. It is conserved, recast, recovered, reused, resold, but it is not like oil or coal or any of the consumable non-renewable resources so it doesn't behave like a non-renewable resource. It is so coveted as to pass from generation to generation without being consumed. There really is little support for an argument for peak gold, in the classic sense.
People like to lump gold in with commodities. That's hard to make a good argument for because it is not really consumed like FCOJ or the like nor is it seasonal, cyclical, or any of the other properties that commodities seem to share with the exception of the fact that it is traded as a commodity. People like to call gold a peak resource subject to the laws of commodities but still, it is not really consumed so it doesn't really go anywhere. Gold deserves special treatment in the way we think about it and the way we classify it, physical gold, that is.
The distinction to make here is that gold is the ultimate barter object for people, be it for paper with ink on it or a herd of cattle or a piece of farmland, it is the ultimate barter object. One can make arguments like you can't eat it or it doesn't pay interest or what ever but the unarguable truth is that it remains the ultimate barter object, across the entire civilized planet. It may be called a safe haven, the last refuge in times of trouble or even insurance against economic unrest and there are many supportable reasons for this but it is still a barter object, even if it can be acquired with FRN's.
Since there are more and more people and a certain percentage of any population will be of sufficient means to purchase gold, then more gold will be sought after for acquisition be it for barter, insurance, refuge, for what ever reason. The same goes for governments, as they become more prosperous and seek more physical leverage with the world, they will acquire more gold as it is still used to settle world trade balances.
There are limits and economies of mining and refining and distributing gold and those limits can be assesed and prognosticated and that will certainly affect the POG. Prices have to rise, not as a commodity, not as a peak resource but because of simple, physical demand for gold. Miners are good, physical is good, people want gold...always have; the only question is at what price.
Just my thoughts, I'm not trying to convince anybody of anything but then again, I'm a stacker so my mind ain't rite anyway.
Got CASH?
roadrunner
<< <i>Over the past year, gold production has only managed a 3.0% increase, despite a 20% increase in price. >>
I'm pretty sure the 20% increase in price has very little to do with supply. While I don't doubt any of the evidence of peak gold, I'm betting on peak silver myself.
Give Me Liberty or Give Me Debt
<< <i>While I don't doubt any of the evidence of peak gold, I'm betting on peak silver myself. >>
Me too. The USGS says the Earth's crust will be depleted of silver by 2025.
<< <i>
<< <i>While I don't doubt any of the evidence of peak gold, I'm betting on peak silver myself. >>
Me too. The USGS says the Earth's crust will be depleted of silver by 2025. >>
Link please?
Knowledge is the enemy of fear
Only those holding physical gold as they see the price of gold rise against most other assets (with an additional deficit of 2500 tons per year). If the economies come to a complete stop one would think that gold and other precious metals will take on a bigger role as money.
Economies halted (or slowing) = lack of goods = price of goods gets bid up = people less willing to accept paper fiat for their precious goods = currencies weaken wrt tangible assts = gold and PM's rise as alternative money
The above scenario is similar to what we're seeing right now but only with the global economy stunted.
roadrunner
<< <i>If we stop producing oil then the global economies will come to a complete stop. If we stop mining gold, will anyone notice? >>
"we?"...i doubt the Middle East and China will stop collaborating their economies if we stopped producing oil.....gotcha on a semantics Dave (i think) i get your drift