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moneymetals

Peak Gold and the Coming Supply Crunch

peak-gold-supply-crunch-social.jpg

During the lackluster and otherwise unremarkable trading of 2018, a hugely important development took place in the precious metals markets. Gold production, in the estimation of some top industry insiders, peaked.

Peak gold represents the point at which the total number of ounces being pulled out of the ground by miners reaches a maximum.

It doesn’t necessarily mean gold production will suffer a precipitous fall. But it does mean the mining industry lacks the capacity to ramp up production in order to meet rising global demand and even higher prices would not make it happen.

One of the leading proponents of the peak gold thesis is Ian Telfer, chairman of Goldcorp (which was recently acquired by Newmont Mining to become the world’s biggest gold company).

Telfer remarked in 2018, “In my life, gold produced from mines has gone up pretty steadily for 40 years. Well, either this year it starts to go down, or next year it starts to go down, or it’s already going down… We’re right at peak gold here.”

We’ll soon find out whether his call for gold production to fall in 2019 pans out. If it does, the implications for precious metals investors are enormous.

The concept of peak gold is controversial, to be sure.

Skeptics point to the thwarting of peak oil over the past decade. Just as technological breakthroughs in fracking and horizontal drilling caused an unexpected surge in crude oil supplies, could not advances in gold mining techniques also lead to an unforeseen supply surge?

When human ingenuity combines with the right market incentives, nothing can be ruled out. But unlike crude oil which is a byproduct of decayed living organisms and exists in various grades all over the world, gold is a basic element that came to us from exploding stars billions of years ago.

Top 5 gold miners production 2017 vs 2018

The amount of gold in earth’s crust is fixed. By contrast, oil and other hydrocarbons can be produced synthetically from renewable biomass.

Perhaps one day we’ll mine for gold in space or generate it in nuclear reactors or particle accelerators. Theoretically, it’s possible. Practically, there’s no prospect of these unconventional methods of boosting earth’s gold reserves becoming economically viable in our lifetimes. It would take a true “moon shot” in the gold price and/or a technological breakthrough that might be decades away from coming to fruition.

In the meantime, the gold mining industry is experiencing a major wave of consolidation.

Last year Barrick Gold and Randgold merged. This year Newmont Mining acquired Goldcorp. Many lesser known junior mining and exploration companies have been or may soon be gobbled up by senior producers looking for an economical way to grow their reserves.

Developing new mines is expensive, time consuming, and risky.

Continue reading: https://goo.gl/siinuz

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