Peak Gold and the Rise of Physical Bullion (Video)

Independent financial journalist Lars Schall interviewed Keith Barron, an exploration geologist and mining entrepreneur with 30 years experience in the industry. Barron believes we’ve seen “peak gold,” which is the point when overall world gold production begins to decline.

Barron emphasizes what a hard time it is for mining companies, but also stresses how dependent the gold price is on paper gold investments. He reasons that this will change, and physical gold will return to power in the coming years when the world realizes that there is more physical gold promised to ETF investors than actually exists. What to do? Buy physical gold and silver now, before it shoots up to $5000 or higher. Enjoy the interview, with a partial transcription below.

The interview is posted at Gold Switzerland, which has also been promoting the Swiss Gold Initiative.

Highlights from the Interview:

“I really do believe that we have seen peak gold. Certainly, a lot of the gold deposits being brought into production these days are around 1 gram. 1 gram per ton. Historically, mining companies wouldn’t touch such grades, reason being – there’s very, very little cushion. You can’t really go any lower. You always have to leave something in the ground. You’re recovery is never 100%, and with 1 gram per ton, your margins are very, very slender indeed. If the gold price should go against you, you really could put your company into real jeopardy…

But the problem is that there aren’t that many robust, high-grade gold deposits being found out there. My own discovery… in Ecuador in 2006… There’s been nothing since then with a similar grade and a similar tonnage. And that’s very unfortunate. I think it’s the fault of the industry, which has played a very very conservative book and really doesn’t want to spend money on grass roots exploration…

The appetite for gold in the far East is voracious. That’s where the bulk of the newly mined gold is going, of course…

Gold is a finite thing, what we call a ‘wasting resource.’ When you open up a gold mine, eventually the mine is going to be exhausted. And I think we have hit a time in world history where people will not be finding too many very very large gold deposits going forward. We’ll just have an ever-diminishing number of smaller and lower-grade deposits to go after…

Companies became accountable for their all-in costs, and they weren’t really being up-front with the total cost of mining gold. They gave us production costs and they were hiding things on balance sheets and really trying to disguise the fact that for the senior gold producers, producing gold was not a really viable business…

This downturn that we’ve seen in the gold price, approaching $1200 right now per ounce, it’s very very scary for the senior mining companies… I think we’ll see a lot of upheaval, a lot of volatility amongst the senior gold miners… I think some of the companies are going to get broken up…

Lars Schall: Do you trust the official numbers regarding the all-time stock of gold above ground? Which would be roughly 170-180,000 tons.

I think that may be accurate. I don’t think it’s understated. If anything, it might be overstated, because I think a lot of the gold that’s out there in the hands of central banks and possibly even the ETFs is being counted two or three times. I think it’s particularly telling that countries that have requested to have their gold hypothecated are not able to get it in a heartbeat. Like Germany, of course, the famous case where they’ve requested part of their gold reserves to be returned by the US, and the US said it’s going to take seven years… This tells me that gold has been released into the market and sold. That is going to be difficult to get it back… I think a lot of the gold that is out there is just a book entry. It doesn’t have physical behind it…

I think that increasingly we’ll see countries not trust the US or the British government and want their gold back. I think the consequences for the gold price are enormous. I think eventually one of the ETFs out there will be shown to be lending out gold and not have the gold in the vaults that they say that they have…

So I think this is one of the things that could potentially trigger a much higher gold price – a big scandal in the ETFs, or one of the countries going rogue and demanding all of its gold back out of Western banks immediately…

[The East] – That’s where [the gold] is now, and it’s not going to come back out of there in a heartbeat. It’s gone to India, it’s gone to China, it’s going to be very very difficult to get the Chinese and the Indians to release that gold back into the market. It’s just not going to happen. To all intents and purposes, it’s off the books…

I think the COMEX is going to come apart at some point. It wouldn’t take too much for someone like a Warren Buffet or a Bill Gates to raid the COMEX and demand delivery and cause all kinds of havoc. It’s not going to take a huge amount of money these days, because I think the physical is just not out there to be found…

I think eventually the Chinese will abandon the US dollar. The Chinese have been accumulating gold like crazy. I’ve seen one estimate that they have 12,000 tons in reserves now. I wouldn’t doubt it at all. Eventually, they’re going to have a very strong currency. I think the motivation behind this is to really have the number one currency in the world…

[Where will gold go when this happens?] Who knows. We know that if you take the gold supply, all the above-the-ground gold in the world, and divided it up amongst the population of the world, then everyone gets less than 1 gram. So where’s the price going to head? In American dollar terms, the gold price is not going to go up. The dollar is going to drop. We could see in my lifetime, $5,000 gold. It’s an inevitability…

What’s happening right now in the gold market is just a result of manipulation by the US government with the interest rates and the QE. The banks are largely playing the carry train with European bonds. The money that has gone into QE is not going into the broad economy. Eventually it will, and then it will cause a lot of inflation. Just since 1975, the dollar has lost 90% of its purchasing power. That’s during my lifetime. Gold in 1975 was pretty low, and I think that we will play catch-up. We’ve had these doldrums in the gold market for a couple years now, but when that $3 trillion that has been created does filter into the broad economy, it will produce a lot of inflation…

In Switzerland, there was a massive sale of gold. About 1,000 tons of gold was sold by the Swiss National Bank at about the same time that Gordon Brown was selling the reserve in the UK. And they got not a very good price for it. If they’d held onto that gold, it would be worth considerable greater amounts today, but it’s gone.

So the Swiss Gold Initiative has got three things behind it… [First], The Swiss bank should be backed 20% by gold. 20% of the foreign reserves held by Switzerland should be held as gold. Second, is that the gold sitting outside of Switzerland’s borders should be repatriated. It’s sitting in Canada and the UK right now, and there is no good reason for it to be there. I believe that the intention at the time when it went there was to keep it out of the hands of Russia if they ever threatened Western Europe during the Cold War. But all of that evaporated now, there’s no good reason for it to be outside of the borders… The third important point is that Switzerland doesn’t make any more gold sales. So they keep their gold reserve as it is right now, intact. Because of this very dangerous experiment with the euro, with the peg, the gold backing of the Swiss franc has shrunk to 8%… It’s extraordinary that a country that valued frugality and sound money and all the rest of it has let this happen. The SNB has gone ahead and done this without the mandate of the people…

I really believe the euro is doomed. It’s going to break apart. And when it does, it could be really really disastrous for Switzerland, because Switzerland owns so many of the damn things in their foreign reserve. So I’m a real champion of the Swiss Gold Initiative and I hope it succeeds.”

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