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Are We Running Out of Gold?

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Last May, the head of the world’s largest mining company said we’ve found all of the gold. Goldcorp CEO Ian Telfer told the Financial Times, “we’re right at peak gold here.”

Peak gold is the point where the amount of gold mined out of the earth will begin to shrink every year, rather than increase, as it has done pretty consistently since the 1970s.

You could blow off Telfer’s comments off as hyperbole or the musings of a contrarian except that he’s not the only person in the gold mining industry worried about decreasing gold production. As a recent Business Insider article reported, many of the top people responsible for supplying the world’s gold say we’re running out of the yellow metal.

Mining execs are concerned because they are no longer finding large deposits to replace aging mines. Last fall, Franco-Nevada chairman Pierre Lassonde said he expects a significant dip in gold production in the coming years.

If you look back to the 70s, 80s and 90s, in every one of those decades, the industry found at least one 50+ million-ounce gold deposit, at least ten 30+ million-ounce deposits, and countless 5 to 10 million ounce deposits. But if you look at the last 15 years, we found no 50-million-ounce deposit, no 30-million-ounce deposit and only very few 15 million ounce deposits.”

And just last month, Seabridge Gold chairman Rudy Frink also expressed concern about shrinking gold reserves.

Peak gold is the new reality in the gold business with reserves now being mined much faster than they are being replaced.”

Barrick Gold president Kevin Dushnisky said even as the number of new discoveries falls off, ore grades and productions levels in existing mines are declining. He said, “Extended project development timelines are bullish for the medium and long-term gold price outlook.”

Consider just one example. South Africa once led the world in gold production. More than 40% of all the gold mined in human history came from the Witwatersrand Basin. But early this year, a study came out saying  South Africa could run out of gold within four decades. Analysts say that at current production levels, the world’s fifth largest gold producer has only 39 years of accessible gold reserves remaining.

Technology could help boost production. As people began worrying about peak oil, new drilling techniques allowed oil companies to reach previously unreachable deposits. Meanwhile, other industries like solar and wind began developing substitutes for oil. But as Business Insider notes:

There’s not really a substitute for gold. And the biggest players in the space are saying we’re running out.”

The Business Insider article notes that it’s hard to pinpoint a top or bottom in gold production, but the looming decline in gold supply could present “an interesting opportunity” for investors, especially considering gold prices have fallen in recent weeks. This may be the time to buy gold.

The long-term fundamentals seem pretty obvious- the people responsible for supplying the world with gold are saying the world is running out of gold and that supply is declining at an alarming rate.”

When we look at the future of gold, it’s easy to get caught up in the latest price move, trade wars and the most recent policy pronouncement by the Federal Reserve. Of course, it’s important to keep abreast of the latest developments in the news cycle. But investors should never lose sight of the most basic fundamentals – supply and demand. The gold industry may well be entering a long-term — and possibly irreversible — period of less available gold. As mining companies find it more difficult to pull gold out of the earth, it will mean less gold for refiners to produce for the consumer market. Remember, gold gets its value from its scarcity.

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