Peak Gold – 75% of All Gold Deposits Have Already Been Mined

November 27, 2013

1933-double-eagle1The basic law of supply and demand dictates the quantity of goods offered for sale.  If prices are low and goods cannot be sold at a reasonable profit, producers will be unmotivated to increase production.  If prices  increase as demand for a product is soaring and producers can reap high returns, supply will increase as producers increase output to maximize profits.

When it comes to gold, however, the textbook equation for supply and demand can be thrown out the window.  Gold exists in finite quantities and has become increasing more difficult and expensive to mine.  In addition, major new gold deposits discoveries have dropped to zero in the past two years and ore grades have declined significantly to only 3 grams per tonne from 12 grams per tonne in 1950.

Even as gold exploded in price from under $300 per ounce in 2002 to $1,800 per ounce in 2011 gold production trended lower.  Despite much higher prices, gold miners were simply unable to increase supply.  According to the World Gold Council mine production over the past five years has not increased and average annual production has remained stable at approximately 2,690 tonnes per year.

On a long term basis gold production will continue to decline even further for the simple reason that most of the earth’s richest deposits of gold have already been mined and new gold deposit discoveries have declined significantly (see New Gold Discoveries Decline by 45%).

At the end of 2012 it is estimated that all the gold ever mined in history totaled approximately 173,000 metric tonnes.  According to the Perth Mint, a study done by Natural Resource Holdings estimates that there are only about 56,674 metric tonnes of recoverable gold reserves left.  If this bleak assessment is correct, over 75% of the world’s total gold reserves have already been mined as shown in the infographic below.

To keep things in perspective, the total global gold supply (including both mined gold and gold reserves) totals 230,000 metric tonnes worth about $9.2 trillion at the current gold price of $1,239.  By comparison, the U.S. deficit has exploded to over $17.2 trillion and the Federal Reserve has printed $4 trillion to drive down interest rates by purchasing mortgage backed securities and treasury debt.

In the bizarro world financial system created by the Federal Reserve and other central banks, the meaning of money has become distorted to the point where it is almost meaningless.  The recent decline in gold prices should be viewed as a long term opportunity to increase positions in a currency that central banks cannot create at will in infinite quantities.

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