I offer insights into gold and silver investments, the precious metals industry as a whole and am the CEO of American Hartford Gold.
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From ancient Egypt to the modern day, gold has been mined for its timeless beauty, inherent value and physical properties. It has underpinned economies for millennia. The discovery of landmark gold deposits during the 19th century inspired several "gold rushes" around the world. In the history of gold mining, an estimated two-thirds of all gold mined was found since the 1950s.
Until recently, there has been an increase in gold reserves of about 1.8% a year for the last 100 years. There is a growing belief that we have reached "peak gold," which raises questions about what impact that will have on investment and industry.
How Much Gold Is There?
To understand peak gold, it is key to know the current level of supply. It is estimated the total amount of gold discovered is about 222,000 tons, and about 170,000 tons of that have been mined.
The gold in the ground is divided between gold that is economical to mine, or reserves and gold that may or may not be economical to mine, or resources. One estimate shows that all known reserves could be mined in seventeen years.
Peak Gold
Like peak oil, peak gold refers to the point when gold production is no longer growing, and the mining industry cannot meet rising demand. Even higher gold prices won’t make it happen because there are simply not enough mines to tap for more supply.
Experts think peak gold may have been reached in 2018. In that year, production fell by 1%. By 2021, there was a global gold deficit of 460.3 tonnes. The mining deficit had to be covered by recycled gold, of which about 1,150 tons were produced. As it stands, recycled gold accounts for almost one-third of the total gold supply.
Due to its almost indestructible nature, gold can be endlessly recycled. Virtually all the gold ever discovered still exists in some form or another. Based on this trait, some industry analysts believe peak gold will never be reached—that there will always be stores of gold that can compensate for any deficit.
However, this point of view can also reinforce the notion of peak gold. It accepts that there is a finite amount of gold. And while gold itself can theoretically be recycled forever, there are practical implications that can lead to a decline in recyclable supplies.
The quality and purity of recycled gold can vary widely, meaning a refining process may be required to remove impurities and achieve the desired purity level. This can result in some loss of gold, further draining the overall supply. Meanwhile, the acquisition of gold for recycling can be volatile due to complex supply chains vulnerable to economic and political forces.
Peak Gold And Mines
A report by research firm Wood Mackenzie found that the gold industry would need to commission 8 million ounces of projects by 2025 to stop the perpetual decline in gold supply. Industry experts concede that it would be virtually impossible to achieve that goal.
Currently, mining output is on the decline. The fourth quarter output of 2021 was the lowest since 2015. Historically, gold production has been on a downward trajectory. The S&P Global Market Intelligence tracks major gold discoveries. Between 1990 and 2019, there were 278 major gold discoveries with the potential to mine.
However, the discoveries declined over time. The 1990s saw 132 deposits identified. By the first decade of the 2000s, there were 93 deposits. In the past decade, 25 were discovered with none in the past three years. And of the 278 discoveries of the past 30 years, about 135 are not yet in production.
With reserves getting depleted, the industry has two choices—mine more gold or discover new deposits. Both options are growing economically prohibitive. Operational mines are beset by production problems—lower grade ore, labor disruptions and protests.
As discoveries become rarer, the cost of exploration rises. The estimated unit discovery cost for gold has doubled between 1991 and 2011. Few current gold exploration projects have the economics, scale, jurisdiction and money to become mines. They must struggle through numerous stages—initial discovery, drilling, resource definition and first production. There is an average lead time of 10 years between discovery and production.
Gold mining has a low success rate; under 0.1% of explored sites yield productive mines, and just 10% of gold deposits are economically viable. Market factors like gold prices and operational costs dictate mining profitability. Higher prices make low-grade ore extraction feasible, while lower prices may restrict mining to high-grade ores.
Mine operations continuously evolve with market shifts, technological progress and process improvements. Innovations in electrification, digitization and automation are transforming mining into a more intelligent, eco-friendly and efficient industry. In a research paper, Professor Josep Peñuelas stated that the reserves of gold could be exhausted by 2050.
Considerations To Keep In Mind
Investors should consider gold's unique benefits compared to other investments. As a safe haven, gold offers intrinsic value without counterparty risk, often acting as a hedge against market volatility and economic downturns. Its privacy, easy transfer and liquidity enhance its attractiveness.
Including gold in a Gold IRA merges tax benefits with the security of physical gold, though investors must consider storage and custodial costs. Choices in gold investing include physical gold, providing direct ownership, and "paper gold" like ETFs or mining stocks, which reflect gold's price but depend on company performance. Understanding these options' pros and cons is vital for informed investing.
Gold Demand: The Other Side Of The Equation
The issue of peak gold translates into real implications for both institutional and individual investors. Gold demand grew 11% between 2010 and 2019 and is predicted to continue rising, fueled by inflation concerns, record central bank purchases and de-dollarization.
With post-peak gold's diminishing supply amid growing demand, it could be setting up gold prices to move upward. While predicting commodity prices is never an exact science, the data suggests a trend toward increasing value. Some analysts believe that gold could break record highs soon.
Those looking for long-term value may find physical gold a promising option, with a Gold IRA offering tax advantages as precious metal values rise. And while we wait for the first mine on the Moon to open, we can hope for gold prices on Earth to ascend.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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