“Peak gold,” as some experts call it, is a real concern…it could send the price of the yellow metal blasting into the stratosphere due to a supply-demand imbalance.
If you look back to the 1970s, 80s, and 90s, in all of those decades, the industry found at least one 50 million ounce gold deposit, at least ten 30 million ounce deposits, and countless 5 million ounce deposits to 10 million oz.
But if you look at the last 15 years, we found no 50 million ounce deposit, no 30 million ounce deposit, and only a few 15 million ounce deposits.
In the medium to long term, this could lead to an imbalance between supply and demand and ultimately place severe upward pressure on the price of gold.
Few major new mines have been discovered today, mostly as companies have had to cut exploration budgets in response to lower gold prices.
Earlier this year, S&P Global Market Intelligence reported that overall exploration budgets for companies involved in nonferrous metals mining have declined for the fourth consecutive year. Budgets for new exploration fell to $6.9 billion, the lowest point in 11 years.
Although we have seen an increase in spending this year, the share spent on prospecting for new mines continues to decline, especially when compared to the heyday reached in 2012.
And since it takes an average of seven years for a new mine to start producing, thanks to feasibility studies, project approvals, and other impediments, production could recede even more rapidly in the years to come.
It doesn’t matter what the price of gold is going to be over the next few years, production is lacking and that means the upward pressure on the price of gold could be very intense.
Gold is both scarce and finite — a major reason it’s so prized — and explorers now have to dig deeper and venture farther into more extreme environments to find economically viable deposits.
But did you know after all that this decline was held back by Central Bank purchases?
The weakness of the bullion – down by more than 10% since the beginning of the year – would probably be even more evident if it were not for the so-called official sector to support it, precisely the central banks, which have returned to accumulating gold reserves.
In 2018 there have already been purchases for 264 tons, by far the maximum for six years.
According to those at the moment, this is the only unequivocally positive sector for gold, as well as “a lifeline” in a period in which the market “is suffering from excess supply and insufficient demand.
The bank’s analysts point out that it is not always and only the “usual suspects” who buy.
If Russia, Turkey, and Kazakhstan continue to lead, for the first time in the 21st century a European country is also increasing its gold reserves: Poland bought 2 tons in July and another 7 in August. He hadn’t done that since 1998.