The price of gold will not suddenly rise due to a shortness of supply, but there is a long-term trend toward “peak gold” supplies due to the extremely sharp drop in gold prices from 2011 to 2015, when gold prices fell from $1,900 to a low of $1,050. Many mining operations closed down and exploration budgets dried up. It takes an average seven years to find and develop a new mine, and 20 years to bring a major mine to peak production, so a turnaround in gold prices won’t boost production quickly. Ian Telfer, chairman of Goldcorp, one of the world’s biggest gold producers, says total gold mine production has already peaked.
Telfer fold the Financial Post recently, “If I could give one sentence about the gold mining business … it’s that in my life, gold produced from mines has gone up pretty steadily for 40 years,” but “this year it starts to go down, or next year it starts to go down, or it’s already going down.” In other words, he said, “We’re right at peak gold here.” Furthermore, he theorizes that “we found it all,” meaning we’ve found all the major gold fields, like the massive South African Witwatersrand Basin, Nevada’s Carlin Trend and Australia’s Super Pit, which are all nearing the end of their life. Most new finds are smaller deposits. As a result, Telfer predicts that gold will likely break through $1,500 or maybe $1,600 before the end of 2018.
Here’s another way to look at it. In the 1970s, 1980s and 1990s, the mining industry found at least one 50+ million-ounce gold deposit, at least ten 30+ million-ounce deposits and countless 5- to 10-million-ounce deposits each decade. But since the year 2000, the industry has found NO 50 million-ounce deposit, not one 30-million-ounce deposit and very few 15-million-ounce deposits. The grades are also lower. The 1970s or 1980s deposits were measured in ounces of gold per tons. Current deposits may only have one gram (there are about 31 grams per ounce) per ton; one gram of gold per million grams of ore!
The idea of “peak gold” doesn’t mean there is no more gold to be found. It means the “low-hanging fruit” has all been picked. There is no equivalent process to “fracking” (for oil) to bring out more gold from the ground. At the same time, there are tougher environmental regulations and more activist governments limiting the miners from raping the landscape in the way they were accustomed to doing in past decades.
Investors with a long-term time horizon need to pay attention to the fundamentals of supply and demand. With a world of 7.3 billion people, including 4.5 billion Asians becoming rapidly richer, the demand for gold will constantly increase, while the newly-mined supply will peak and then fall. With the global population and per capital GDP growing faster than the new gold supply, the inevitable direction for the price of mankind’s proven monetary metal can only go up, while cheap paper money continues to decline.
This is the Time of Year to Buy Gold (and Sell Stocks)
Gold and stocks tend to move in opposite directions – one zigs while the other zags. Stocks tend to rise in the first half of the year and gold in the second half. Many investors, especially those new to precious metals, don’t know that gold is seasonal. This is primarily due to traditional jewelry demand, including the wedding season in India and demand in other fall and winter holiday seasons. Stocks tend to fall in the summer months when demand declines, with most historical crashes coming in September and October.
September is gold’s best month and it is also the worst month for stocks. In the last 20 years, August has become the worst month for stocks. Stretching out to a six-month time span, August to January is the best time for gold, while May to October is the worst time for stocks. Therefore, the best time to switch a portion of one’s portfolio from stocks to gold would be between May 1 and July 31 – right about now!