"Peak Gold Production" Hits In 2015

Tyler Durden's picture




 

Several days ago we reported that as a result of persistently lower gold prices, driven down by a seemingly endless supply of paper gold (in the form of ETF selling and Bank of International Settlement "price discovery") offsetting a seemingly unbridled appetite for physical gold, not only is one of the biggest marginal suppliers of gold - Chinese producers - about to take an extended hiatus, but first one and then many "developed" gold miners are about to throw in the towel.

As UBS' Shanghai analyst Lin Haoxiang said, "Falling prices are cutting into some high-cost private mines in China, while some big miners chose to reduce costs by reducing jobs and capital investments." As for the North American gold miner defaults, they have already started with Canada's San Gold warning its creditors it is about to stuff them with a lot of unrepayable paper.

However the unwind plays out, it is becoming increasingly clear that just as the crude oil market is set for some violent times ahead as producers lock into the defection phase of the Prisoner's Dilemma and flood the market with supply in an attempt to crush the weakest competition, so the gold market is set for many upheavals, the first of which, however, may be what Goldcorp defined in a recent slideshow as Peak Gold.

The only difference is that Goldcorp does not look at it from the perspective of Game Theory, where it is every miner (and their balance sheet) for themselves, but as a function of a 20 year lead-in development time following the period of peak gold discovery which took place in 1995. End result: "Gold market forecasters are expecting peak production in ~2015."

 

And then there are of course, the practical implications of gold miners who are living if not on borrowed time, then close to it. As the following chart of the gold industry's "all-in sustaining costs", when one takes net debt and the interest due on it into consideration, it becomes clear why gold has managed to find the $1050-$1200 region as support: drop the price of gold below that and suddenly 90% of the entire gold industry becomes unprofitable.

 

None of which means that gold can't - or want - drop below any given price, or slide into the triple digits. As we showed earlier, the new normal "markets" are so rigged - with the blessing of central banks no less - that attempting any rational predictions, especially when it comes to the one susbtance most hated by central bankers through the ages, is painfully meaningless.

And we are confident that before all is said and done, gold will surely plunge to even further manipulated lows because in the current market, where one can create paper gold futures contracts out of thin air, there is nothing to prevent just that. Which is why the following table showing gold miner net leverage will be quite useful in the years to come as the race to the prisoners' dilemma "defection" bottom - one in which only those with the best balance sheets survive - enters the final stages.

In any event when all is said and done, gold production will be far lower in a few years than where it is now. The only question is how will central bankers orchestrate a parallel decline for physical gold, because even with all the paper manipulation in the world, the supply and demand curves for the underlying commodity can be ignored only for so long.

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Tue, 12/30/2014 - 17:39 | 5606665 ZH Snob
ZH Snob's picture

good.  I don't want much more of it out on the market.

Tue, 12/30/2014 - 17:56 | 5606761 stinkhammer
stinkhammer's picture

tradition!

Tue, 12/30/2014 - 18:08 | 5606808 outamyeffinway
outamyeffinway's picture

Assuming CB's want phyzz to be priced lower, i.e. Which may not be the case.

Tue, 12/30/2014 - 22:10 | 5607710 Long-John-Silver
Long-John-Silver's picture

Why worry about physical Gold when a printing press can stamp out all the paper Gold needed to sustain the scam.

Tue, 12/30/2014 - 17:58 | 5606764 kliguy38
kliguy38's picture

Bernank has a swiss storage account already set up 8 years ago.......he's set for life with gold. They all know where this ends up.

Tue, 12/30/2014 - 18:57 | 5607012 Hawkey Schtick
Hawkey Schtick's picture

Peak gold = emerging stack growth

Tue, 12/30/2014 - 20:40 | 5607415 fuck_wad
fuck_wad's picture

how do you know this about bernanke and is this source reputably true?

Wed, 12/31/2014 - 00:48 | 5608077 NidStyles
NidStyles's picture

You're posting on the source already chief.

Tue, 12/30/2014 - 19:17 | 5607088 SilverDoctors
SilverDoctors's picture

Peak Gold.  Just in time for the Shanghai Shock to the Gold Market Jim Willie is predicting...

Wed, 12/31/2014 - 01:20 | 5608124 tplink
tplink's picture

my roomate's half-sister makes $65 /hr on the computer . She has been without work for 7 months but last month her pay check was $14940 just working on the computer for a few hours. you could try this out... www.works3.com

Wed, 12/31/2014 - 08:29 | 5608472 Michigander
Michigander's picture

Why your roomates cousins brothers daughters step child? Why isnt she spreading the pyramid bullshit? Those that can, do. Those that can't (you in particular) verbally masturbate.

Wed, 12/31/2014 - 08:45 | 5608494 Meme Iamfurst
Meme Iamfurst's picture

 

 

 

My roomates half brother is Chief Inspector for tax evasion at the IRS.  

 

HE wants to know your real name, and will get it from Zerohedge.

Tue, 12/30/2014 - 17:38 | 5606668 Al Huxley
Al Huxley's picture

Don't you think it will probably turn out like oil?  You know, some magical, inifinite supply will turn out to have been there all along, and we were just bein' fucked with for 40-odd years, and the price will drop back to 35/oz?

Tue, 12/30/2014 - 17:44 | 5606694 achmachat
achmachat's picture

no.

Tue, 12/30/2014 - 17:59 | 5606779 Rainman
Rainman's picture

wha ? ...... nothin .gov would love more than to stick it up the arse of all you doomer gold hoarders....!!

Tue, 12/30/2014 - 21:30 | 5607593 KnuckleDragger-X
KnuckleDragger-X's picture

I am not a hoarder, I am a collector and connoisseur of a metal of a particular hue.

Tue, 12/30/2014 - 17:47 | 5606721 giggler321
giggler321's picture

shocks - those frigging aliens again dumping their waste rock on earth??

Tue, 12/30/2014 - 17:53 | 5606741 kaiserhoff
kaiserhoff's picture

The whole cash for gold thingy sure died fast.  Around here, they have all been replaced by title loan sharks.  Progress.

I think TPTB will be OK.  There's a good supply of tungsten.

Tue, 12/30/2014 - 18:04 | 5606789 Al Huxley
Al Huxley's picture

Well that run up to 1900 did a pretty good job of shaking out all the 'old gold' that was cluttering up joe sixpack's living space.  Now that it's all be converted to IPads and flatscreen tvs and new Ford pickups and biggie-sized burger/fry combos, all they've got left to grab is the GLD inventory, but that project's well underway - just requires keeping the price down now instead of running it up.

Tue, 12/30/2014 - 21:40 | 5607601 wee-weed up
wee-weed up's picture

 

 

"all they've got left to grab is the GLD inventory"

Ha! And what GLD inventory would that be?

The "paper count"...

Or the real impartially-verified physical count?

I would venture to say there is a LOT more of the former than the latter...

And the difference is growing every day!

Tue, 12/30/2014 - 17:54 | 5606744 quasimodo
quasimodo's picture

Abiotic gold?

 

Tue, 12/30/2014 - 23:45 | 5607953 jerry_theking_lawler
jerry_theking_lawler's picture

There is a near infinite supply....don't believe me, just look up at the night sky...it's being 'made' all the time. I bet it would only take $5,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000....... to go up there at just pick it up from a nearby object.

Tue, 12/30/2014 - 17:54 | 5606751 Seasmoke
Seasmoke's picture

My ounces already say $50 on them. 

Tue, 12/30/2014 - 17:59 | 5606775 Al Huxley
Al Huxley's picture

That's pretty awesome, you'll be 15 bucks to the good on every one of them.

Tue, 12/30/2014 - 18:57 | 5606999 Tall Tom
Tall Tom's picture

By my calculation he will be $29.33 to the good on every one of them.

 

Gold was priced at $20.67 before that Commie bastard socialist FDR raised the price to $35.

 

That is where it needs to be.

 

Come on DEFLATION.

Tue, 12/30/2014 - 18:09 | 5606816 seek
seek's picture

Even the drugs Al Huxley took wouldn't make him believe that.

That said, I think we're seeing a lot of deflationary signals in many commodities. Clearly we're living in a bizarro-world hybrid financial system, where there's inflation in stocks, housing, cars and food for the most part, but deflation in many commodities and financial alternatives. I won't be suprisied at all if gold drops another $200, nor would I be suprised if it went up $500.

The way I see it, there's dollar sources (the Fed, loans, and savings) and dollar sinks (assets, commodities, and consumables). The dollars sourced by the Fed are clearly going into equities, as are most of the dollars loaned to corporations doing stock buybacks. Large-scale savings is interesting, because those dollars are somewhat out of the control of the Fed, especially if interest rates are low (presuming only two things, high rates and flights to safety, drive people into USTs) non-US savers had been directing their attention at commodities, but now that their own economies are sliding that interest is diminishing, and down go commodity prices, including gold.

My intuition is that gold goes lower, that some producers will be able to stay online due to lower energy costs but most countries retain local production, keeping it off the market and keeping gold from declining too much.

Then, the financial system breaks, either due to deflation wiping out banks from all those Fed dollars getting squished out of stocks and vaporizing, or through inflation when those dollars land somewhere in what's left of the real economy, or my favorite, the Fed keeps funding UST purchases and the printed dollars cover government spending and the markets wake up to how much dilution is happening and go elsewhere.

Tue, 12/30/2014 - 18:46 | 5606930 spinone
spinone's picture

There's no sense in saving dollars at ZIRP.  Most investors are in the stock market and everyone else is blowing their money on BS.  There's no other game in town.

Those with access to the money are making big gains in a rigged casino, everyone else is begging for scraps to spend on debt service and expensive food, healthcare and education costs.

The dollar is debt - saturated.  Like a monopoly game we have to keep playing although one player owns everything and is also the bank, and keeps writing $100 and $500 on little scraps of paper to pay everyone as they pass go, even though he knows he'll just get it back as soon as rent.

Tue, 12/30/2014 - 21:01 | 5607496 logicalman
logicalman's picture

It's simple.

Price discovery.

SHTF

How much food will an ounce of silver or gold buy?

Now that, really, is price discovery.

Having said that, just for comparison, how much food will a rectangular piece of paper get you (no matter how much fancy ink it has on it)?

Tue, 12/30/2014 - 18:43 | 5606931 Cheduba
Cheduba's picture

Maybe their goal is zero supply, a price of $0 per ounce, and an infinite demand for physical?

Tue, 12/30/2014 - 18:47 | 5606953 crazybob369
crazybob369's picture

Not likely, given that the stuff is manufactured deep in the bowels of nascent stars. Having said that, never sell technological advances short. If we can figure out how to economically extract the stuff from the ocean (there is approximately 1oz in 57,000 tons of sea water), then you might be on to something. I'm guessing if gold ever hits $15,000-$20,000 an ounce, you'll start seeing a lot of ocean gold platforms. Who knows, might be sooner than we think.

 

Tue, 12/30/2014 - 22:54 | 5607837 TheReplacement
TheReplacement's picture

If gold hits $15-20K don't you think things like hamburgers will cost $50-60?  What does that do to the cost of ocean gold platforms?

Tue, 12/30/2014 - 18:50 | 5606971 winchester
winchester's picture

no way

Tue, 12/30/2014 - 19:25 | 5607136 The Duke of New...
The Duke of New York A No.1's picture

The Gold industry hasn't figured out new ways to frack, compress, or boil new Gold out of the ground... very few improvments in Gold extraction technology in decades - other than new/recent green technologies that require less chemical treatments.

Tue, 12/30/2014 - 20:56 | 5607482 logicalman
logicalman's picture

I take it you are not an optimist!

 

Tue, 12/30/2014 - 22:16 | 5607733 Long-John-Silver
Long-John-Silver's picture

Physical Gold is created in the heart of an exploding star (Super Nova). Then it travels through space where it eventually falls to earth. Considering how it is created and is drawn to a gravity sink such as our planet, One would think it would be worth a lot more than it is today.

Tue, 12/30/2014 - 17:39 | 5606670 headhunt
headhunt's picture

What else are gold bugs going to predict but peak production leading to increased value of an already scarce commodity.

 

Tue, 12/30/2014 - 17:41 | 5606677 Tin Hat Salesman
Tin Hat Salesman's picture

Should I buy gold or silver? or copper? (my dad's a plumber he could use copper)

Tue, 12/30/2014 - 17:42 | 5606682 Al Huxley
Al Huxley's picture

BTW, I notice that GLD is down to 712 tons,from 720-ish before Christmas, so looks like the pilfering of the last great cache continues.

Tue, 12/30/2014 - 17:41 | 5606684 dogbreath
dogbreath's picture

isn't 1200 "calories" like starvation rations in the gulag

Tue, 12/30/2014 - 17:41 | 5606687 Oldballplayer
Oldballplayer's picture

I wonder how many of those mines also produce silver as a byproduct?

If they shut down the gold mining, a minor disruption in the silver market will have an effect?  As all of you know--silver has a real use.

Cutting just a little bit out of than small market could disrupt things.

Just a thought.

Tue, 12/30/2014 - 18:37 | 5606904 crazybob369
crazybob369's picture

You're quite right, but I have a slightly different take on it. Because silver does have so many uses, other than for coinage and jewelry, and given that its above ground, available supply is actually less than the available gold, there currently exists a severe silver deficit in the physical silver market. Once this becomes common knowledge, the industrial users (who are likely hedging in the paper market) are going to stand for physical delivery and are going to be in for a rude surprise when they discover they can't have their physical silver, because it doesn't exist. That's when all hell is going to break loose in the metals markets. It's going to be fun to watch.

Tue, 12/30/2014 - 19:54 | 5607261 WmMcK
WmMcK's picture

More copper than gold mines produce silver as a byproduct.

Tue, 12/30/2014 - 17:45 | 5606697 Miss Expectations
Miss Expectations's picture

I recall all the supply/demand/marginal revenue/break even curves that were tought in college economics 101.  What do they talk about now?

Tue, 12/30/2014 - 17:54 | 5606745 kaiserhoff
kaiserhoff's picture

Selfies.

Tue, 12/30/2014 - 17:45 | 5606712 Bay of Pigs
Bay of Pigs's picture

Gold/XAU Ratio 17.36

The miners have been absolutely annhilated. Doubt many of them will survive this relentless suppression and manipulation unless gold skyrockets in the next year or two.

Tue, 12/30/2014 - 18:05 | 5606796 LawsofPhysics
LawsofPhysics's picture

Please, my VC freinds just told me that "gold has no place in modern finance".

I am not kidding, they all believe gold to be a "barbarious relic".  All products of ivy league schools, all extremely wealthy.

How can I argue with that?

Tue, 12/30/2014 - 18:19 | 5606844 seek
seek's picture

You can't, I've run into the same. If you completely buy into the fiat system (and they have) it really does have no role.

The problem is they also believe in free markets (not only in the sense of unhindered exchange, but also that there's no corruption, information flows freely, etc) and we know that is absolutely not true. Once it's accepted that it's not true, then valuations can't be trusted, and once valuations can't be trusted counterparty risk becomes very real. Once counterparty risk becomes real, then you've got a compelling argument for physical holdings of whatever. It can be pointed out that you can set the value of everything at zero, and in the end whoever is holding a tangible thing that's useful to them is still doing better than the one holding promises (though this argument is usually a lot more convincing in getting people to hold weapons and food than it is gold.)

It's rare for the brain-damaged to become enlightened, but on rare occassions you'll see the wheels turn and the realization click, and then there's a "holy fuck" realization.

Tue, 12/30/2014 - 18:23 | 5606865 LawsofPhysics
LawsofPhysics's picture

I get that, but for right now, those "brain damaged" folks are flying between resorts in their own private jets.

 

Tue, 12/30/2014 - 19:00 | 5607021 Tall Tom
Tall Tom's picture

Not For Much Longer.

 

Besides when the Shit Hits the Fan I am certain that some are going to be "Bird Hunting" near the regional airports and be knocking those private jets out of the sky.

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