Is the World Really Running Out of Mineable Gold?

Is the World Really Running Out of Mineable Gold? from Schiff Gold

Is the world really running out of gold?

According to a report in Deutsche Welle, it just might be.

Over the last couple of years, several prominent gold mining executives have warned we have found most of the world’s minable gold. For instance, last year, Goldcorp chairman Ian Telfer said, “We’re right at peak gold here.”  And during the Denver Gold Forum in September 2017, World Gold Council chairman Randall Oliphant said he thought the world may have already reached that point. Franco-Nevada chairman Pierre Lassonde has also indicated he expects a significant dip in gold production in the coming years.

Peak gold is the point where the amount of gold mined out of the earth will begin to shrink every year. Global gold mine output marked its 10th year of annual growth in 2018, but continued to show signs of slowing.

As the Deutsche Welle article pointed out, gold production has plateaued before, only to rebound and reach new peaks. Production has hit all-time highs and then gone into sharp decline at least four times in the past. The difference this time is that we’ve had a three-decade decline in the discovery of new gold deposits despite increases in exploration funding. CFRA Research analyst Matthew Miller told Deutsche Welle that gold miners are struggling to grow reserves in line with production.

The largest and most prolific reserves have already been found.”

Between 2010 and 2013, exploration budgets exploded, but gold discoveries dropped precipitously.

Analysts say the quality of new deposits has also been in decline. Hardly any qualify as “world class,” defined as “large high-grade deposits with over 5 million ounces of gold reserves that can be turned into profitable mines capable of producing over 250,000 ounces of gold.”

Mine grade – the amount of gold extracted per ton – has fallen from over 10 gram per ton in the early 1970s to around 1.4 grams per ton today.

Some analysts say there is still plenty of gold, but the price isn’t high enough to sustain mining operations. Miners have already dug up all of the easy to reach deposits. New gold reserves lie deeper underground. This creates additional costs and safety concerns. An analyst looking at dwindling reserves in South Africa made this very point.

As you dig deeper into the ground, you need a higher gold price to make those resources economical, if there isn’t a favorable gold price, those resources can’t be mined economically.”

According to analysts Deutsche Welle talked to, a minimum price of $1,500 per ounce is needed to maintain current production levels. That means supplies will continue to diminish until the price rises to at least the level.

Whether or not you think we’ve reached peak gold, you should never lose sight of the most basic fundamentals – supply and demand. Analysts say 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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Peter Schiff

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for more than twenty years, he joined Euro Pacific in 1996 and served as its President until December 2010, when he became CEO. An expert on money, economic theory, and international investing, he is a highly sought after speaker at conferences and symposia around the world. He served as an economic advisor to the 2008 Ron Paul presidential campaign and ran unsuccessfully for the U.S. Senate in Connecticut in 2010.