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Gold Prices Will Rise with Peak Mining Exploration

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Unlike re-printable fiat currency, gold is money because there is a finite amount of it. The Fed can’t produce more gold whenever it wants. For this reason, gold has functioned as a barter and wealth preservation system for thousands of years. But how much gold is left in the earth?  What will happen to the price when exploration stops or is limited?

man mining

In a recent article, Frank Holmes, Chief Investment Officer of U.S. Global Investors, Inc., makes the case that world mine production is beginning to fall off and 2015 may have been the last peak production year.

Taking estimates from analysts like Goldman Sachs’ Eugene King, Holmes thinks we may be looking at only 20 more years worth of “known minable reserves.”

If King’s projection turns out to be accurate, and the last ‘known’ gold nugget is exhumed from the earth in 2035, that won’t necessarily spell the end of gold mining. Exploration will surely continue as it always has – though at a much higher cost.”

It’s this higher cost towards exploration and extraction that will help drive gold prices to unseen levels. “The gold price could spike dramatically to levels only imagined,” he states. “There’s really no way of knowing how high gold could go.”

Peak production is also suggested by the slowdown in mining production overall.

This year, second-quarter mine supply was 2% less than the same period in 2015 … Some analysts now expect global production to fall 3% in 2016, after seven straight years of growth.”

mining graph

Not only is mining slowing down, but the new mines coming online seem to be producing less yields than older ones.

Indeed, if we look at projects that opened in just the last two or three years, we see that they’re of lower grade, meaning they don’t produce nearly as much as older, easy-to-mine gold deposits.”

Making the issue even worse is the growing time between discovery of gold and then when it begins to yield due to regulations and an “increase in feasibility assessments, compliance, licenses, and more,” says Holmes.

With gold prices up 26% this year, it seems rational that gold mining companies would look to look to ramp up production. However, there’s a lot of cost savings and paying down of debts running throughout the industry.

With the gold availability limit looming and production slowing, it’s only a matter of time before gold prices begin moving north substantially. More and more investors will be looking to buy gold in the near future because of the current state of the mining industry.
 

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