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June 21, 2016Key Gold Headlines

News Flash: Gold Mining CEO Predicts Shrinking Gold Supply

The CEO of one of the world’s largest gold mining companies says he expects gold supply to shrink over the next five years.

Gary Goldberg heads Newmont Mining. The company operates gold mines on five continents and employees more than 16,000 people. In an interview with Mining.com, Goldberg said he sees gold supply contracting in the near future as the gold market continues to expand.

gold mine cart

Well, we have seen [the gold market] pop up a bit earlier this year off the back of higher investments in ETFs. We still see good demand for gold in China and in India. We see the medium- to long-term as being very good. I think you have seen a decrease in supply as there has been less investment in new properties. We are one of the few who are building two brand-new mines…Overall we see gold supply dropping by about 7% by 2021.”

Earlier this year, analysts predicted gold output would begin to shrink in 2016. Global gold production is expected to fall 3% this year, according to a report released by Thomson Reuters’ GFMS metals research. The decline in production will end a seven-year period of rising supply, which peaked in 2015 at 3,155 tons.

There were already signs of slowing production in the last half of 2015. Year-on-year quarterly gold mine production shrank by 1% to 828 tons in the third quarter, according to the World Gold Council.

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Meanwhile, Overall demand for gold continues to surge, hitting 1,290 tons in the first quarter of this year. It was the second-largest quarterly demand spike on record.

Some analysts believe the world may soon hit what is known as “peak gold.” At that point, the amount of gold mined each year will begin to shrink rather than increase as it has generally done since the 1970s. In September 2014, Chuck Jeannes announced that he believes the world will reach “peak gold” either in 2015 or 2016. Last April, Goldman Sachs analysts predicted gold production would peak in 2015, saying there are “only 20 years of known mineable reserves of gold and diamonds.”

Taking supply and demand data together, it seems likely the gold industry is moving into a long-term period of tight supply and surging demand. Economic factors point toward a looming recession. Persistent negative interest rates and interventionist monetary policy show no signs of ending. These factors historically point to robust demand for gold.

It’s easy to focus on the latest news, like the most recent jobs report, Federal Reserve pronouncement, or the looming Brexit vote. But investors should always take note of the fundamental dynamics on both supply and demand side of the gold market, and not just focus on the current economic data.

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