If current trends continue, get ready to add one more item to the already long list of shortages: gold. This should come as no surprise, since the theory of peak gold states that the world’s gold production has peaked and will decline steadily.
One proponent of peak gold theory is Chuck Jeannes, who proposed it in 2014 when he was CEO of Goldcorp, a major gold producer. Jeannes’s opinion received a great deal of attention and was even prominently featured in The Wall Street Journal. Skeptics dismissed the idea, saying Jeannes was simply trying to boost the price of gold. But in fact, since Jeannes expressed his opinion - and even years before that - there was a growing number of data that lent support to it.
It Ain’t Just Jewelry
Gold always had a following, but it really began capturing the public’s attention in the late 1970s, when the inflation rate began increasing sharply; at the same time, the price of gold soared to unthinkable highs.
Gold has played an important role in jewelry since Biblical times, but it’s also used in many more applications, including aerospace, medicine, medals, and ornaments; of course, many countries own huge stockpiles of bullion and continue to add to those.
From the 1970s through 2000, the production of gold has increased each year; then a change became evident. In 2015 Vince Borg, spokesman for Barrick Gold, the world’s biggest gold producer at the time (today this distinction belongs to Newmont Goldcorp), said gold production peaked in 2000 and has been declining since then.
Borg has statistics that back him up. A study made by SNL Metals and Mining Research, a database of mining information and analysis, found that the number of major discoveries - mines with reserves of two million ounces or more - had been declining steadily for well over two decades. And so has the total number of ounces discovered each year.
Meanwhile, another trend also has been emerging. The amount of time needed to bring a mine into production is increasing. One would imagine that improved technology and new mining techniques would speed up the process, but this has not been the case at all.
Consider this: Between 1985 and 1995, it took on average only eight years to bring a new mine on line. But according to SNL, in the following decade this number rose to 11 years. And between 2006 and 2013, the number increased again, this time to 18 years.
The latest estimates are that it now takes 20 years or more from the time gold is discovered until the time it finally is mined. Bureaucracy, getting permits, environmental concerns, and in some cases climate issues are adding to the delay.
20 Years And Counting
Meanwhile, finding new deposits, particularly large ones, is becoming more difficult. This helps explain why the number of new ounces of gold discovered has been declining every year for more than 20 years.
During the 1990s, an average of more than 100 million ounces of new gold was being discovered each year. But by the 2000s, this number had declined to just 50 million ounces. And since 2010 there has been another dramatic drop.
According to Casey Research, only one in 6,300 gold projects ultimately goes into production - and new projects are becoming more difficult to find even though there is the added incentive of a gold price that is much higher than it was years ago and not far below the all-time high of $2,067 reached in 2020.
In 2009, then-Fed-Chair Ben Bernanke testified to a Congressional Committee that gold was not money; there are some who agree, saying it is only a commodity while others believe that it is both. But by whatever name it is called, gold is highly valued in every country around the world.
It’s also highly valued by every country. The central banks of the seven countries that make up the largest holders of gold after the US purchase the yellow metal aggressively and regularly, and so do many investors, speculators, collectors, and investment funds.
At the same time that demand is increasing, supply is decreasing. For example, both large and small producing mines are gradually becoming depleted. And according to the US Geological Survey, the grade of ore in both underground mines and in open pit projects has been declining since 1997. Given these trends, it’s easy to see why gold bugs and others believe that peak gold not only is coming but that it is already here.
Interestingly, the idea of peak gold may apply to other commodities as well. In fact, if current trends continue, the coming years may bring shortages not only of gold but of other commodities too, and with them huge increases in their prices.
One of the fascinating characteristics of gold is that it remains incredibly scarce, despite all of the exploration in countries around the world over millennia.
According to the World Gold Council, at the end of 2019 less than 200,000 tons has been mined throughout history. Estimates of how much gold remains in the ground vary, but analysts agree that mining for it will become increasingly difficult and more expensive.
There isn’t very much talk about peak gold these days. Yet one wonders whether it is already here and hiding in plain sight. Very possibly the answer is “Yes,” even though it hasn’t gotten as much attention as some cryptocurrencies, nor has its price skyrocketed as much as Bitcoin, Ethereum, or several others.
Gold still has its friends and supporters. In fact, some of the most respected names on Wall Street have been urging investors to take a position or add to add to existing positions now before the price really takes off. There are even efforts in several states to recognize gold as money and for the US to go back on the gold standard. More importantly, major countries keep buying more and adding to their positions, which has to be a major endorsement.
Many analysts think the gold industry may well be entering a long-term - and possibly irreversible - period in which less gold is available. Whether we’ve officially entered the era of peak gold or not, higher prices may lie ahead. For gold bugs, that can’t come a minute too soon.
Sources: buzzle.com; caseyresearch.com; cambridgehouse.com; goldprice.org; goldsilver.com; peakresources.org; seekingalpha.com; 24/7wallst.com; wallstreetdaily.com