Peak Gold

Tyler Durden's picture

From GoldCore,

Today's AM fix was USD 1579.00, EUR 1294.05 and GBP 1022.34 per ounce.
Yesterday’s AM fix was USD 1565.50, EUR 1281.10 and GBP 1011.96 per ounce.

Gold fell by 0.3% in New York yesterday and closed down $4.90 to $1,571.70/oz. After a sharp drop and equally sharp bounce higher, silver rose 0.3% or 8 cents to close at $27.17/oz

South African Gold Production Continues To Plummet

After initial falls in Asia, gold traded sideways and then gradually ticked higher later in the Asian session and has seen further gains in European trading. Gold is currently set to finish the week marginally lower in dollar and sterling terms but higher in euro and Swiss franc terms.

South Africa's gold output continues to collapse and fell a further 2.9% in May, according to data from Statistics South Africa released yesterday. The decline in gold production comes despite a 0.8% rise in total mining output in the same month (see below).

Gold is being supported by euro zone currency and contagion risk and inflation hedging diversification.

Merrill Lynch predicted gold would reach $2,000/oz yesterday due to more astute investors fearing inflation due to ultra loose monetary policies. Francisco Blanch, Head of Global Commodity & Multi-Asset Strategy Research Merrill Lynch, said in a CNBC interview that Merrill believe “that $2,000 an ounce is sort of the right number. We believe that ultimately the Fed will be forced to do quantitative easing.”

“If it happens in September, as our economists expect, we will get a rally sooner in gold,” Blanch added. ”If it happens after the election (in November), we will get the rally a little bit later; probably we will touch $2000 an ounce sometime next year.”

Demand and supply factors remain in gold’s favour.

There is strong demand from store of wealth buyers in Europe, China, the Middle East and the rest of Asia – not to mention strong demand from institutions and central banks.

A new trend seen in recent weeks is that of an increase in demand for corporates in the euro zone who are diversifying deposits in order to reduce bank, currency and systemic risk.

While some attention has been paid to the robust, broad based global demand for gold, less attention has been paid to the supply side and in particular the important gold production data.

Supply remains anaemic with the cash for gold craze seeming to have run its course, with central banks now net buyers and with mine supply not increasing sufficiently to meet demand.

 

With regard to global gold production, China, the world’s largest gold producer and now the world’s largest gold buyer, has been the only major producer to see an increase in production in recent years.

The massive increase in Chinese mining supply has raised some eyebrows with some questioning whether the figures are being exaggerated by Chinese mining companies and Chinese bureaucrats.

More recently, there is a concern that gold production in China may actually be declining as older mines reduce production.

South Africa produced over 1,000 tonnes of gold in 1970 but production has fallen to below 250 tonnes in recent years (see chart above). This is a collapse as these are levels last seen in 1922 and happened despite the massive technological advances of recent years and more intensive mining practices.

South Africa's gold output fell further 2.9% in May, according to data from Statistics South Africa released Thursday, despite a 0.8% rise in total mining output in the same month.

 

Recently, the decline in South African gold production has been attributed to national electrical issues and power outages, operational delays and safety issues. However, the scale of decline at a time when there has not been a corresponding decline in base metals mined in South Africa suggests that geological constraints may be leading to lower production.

Other large gold producing nations have seen similar sharp declines.

Peak oil is a phenomenon many will be aware of – peak gold remains a foreign concept to most.

Peak gold is the date at which the maximum rate of global gold extraction is reached, after which the rate of production enters terminal decline. The term derives from the Hubbert peak of a resource.

Unlike oil and silver, which is destroyed in use, gold can be reused and recycled. However, unlike oil gold is money, a store of value and a foreign exchange reserve and gold is slowly being remonetised in the global financial system and indeed may soon play a role in a new international monetary system.

In 2001, the world saw what was believed to be record global gold production of 2,649 tonnes. Production then fell in the coming years despite the rising gold price.

In 2010, despite a 5 fold increase in the prices in US dollar terms, some estimates recorded gold production had risen 1.5% from the record in 2001 at 2,649 tonnes to a new record of 2,689 tonnes.

World Gold Council data for 2011 showed that production had increased by 4% from 2010 to 2,810 tonnes of gold. Much of the production increase was attributed to Chinese production data.

The Chinese production data may or may not be reliable but there is also confusion with regard to the data as there are discrepancies in the gold production data between the US Geological Survey and the World Gold Council.

The USGS has informed us that the discrepancies are due to different estimates of artismal mining data and that the USGS reports each country's reported data.

Paul Tudor Jones’ Tudor Group released a chart using GFMS data in 2010 that showed that global gold production had peaked in 2001 and was falling (see chart above and video).

In 2009, Barrick CEO Aaron Regent claimed that global production had peaked in 2000.

He told The Daily Telegraph at the RBC's annual gold conference in London that "there is a strong case to be made that we are already at 'peak gold'."

"Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore," he said.

Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa's output has halved since peaking in 1970.

Peak gold may not have happened in 2000. Nor may it have happened in 2011. However, the geological evidence suggests that it may happen in the near term due to the increasing difficulty large and small gold mining companies are having increasing their production.

It is also signalled in the fact that most of the larger gold producing countries (such as Australia, the U.S., South Africa, Canada, Peru, Indonesia) have all seen production drops in recent years.

China and Russia are the two only large producers to have seen production increases.

Peak gold has yet to be considered and analysed by the international financial community but there is a risk that it has happened or will happen soon with a consequent impact on the gold mining industry and on gold prices in the 21st Century.

The fact that peak gold may take place at a time when the world is engaged in peak fiat paper and electronic money creation bodes very well for gold’s long term outlook.

NEWSWIRE

(Bloomberg) -- South African Gold Output Fell 2.9% in May From Year Ago
South African gold production fell 2.9 percent in May from a year earlier, Juan-Pierre Terblanche, a spokesman for Statistics South Africa, said by phone from Pretoria today.

(Bloomberg) -- South African Mine Output Rose 0.8% in May From Year Ago
South African mining production rose 0.8 percent in May from a year earlier, Juan-Pierre Terblanche, a spokesman for Statistics South Africa, said by phone from Pretoria today.

(Bloomberg) -- South African Platinum-Group Metal Output Declined 6% in May
South African platinum-group metal production fell 6 percent in May from a year earlier, Juan- Pierre Terblanche, a spokesman for Statistics South Africa, said by phone from Pretoria today.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWS

Gold headed for 2nd losing week as dollar firms - Reuters

Gold up for first time in four sessions - MarketWatch

Italy Exits Before Greece In BofA Game Theory - BLoomberg

Oil jumps on Iran; corn up on renewed harvest worry - Reuters

COMMENTARY

Jim Grant Discusses The Fed's 'Backward Shooting Gun - Zero Hedge

LIBOR scandal brings gold price manipulation once more to the fore - Mineweb

In Gold We Trust 2012 - Acting Man

Libor and other manipulations are not victimless crimes - Max Keiser

Jim Rogers: Duck and Cover, Your Cash Is NOT Safe; Buy Physical Gold & Silver - ETF Daily News

Why Silver Price Could Double in Three Months - Resource Investor

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Sudden Debt's picture

Has anybody seen those show on discovery about those goldminers?

Almost always they dig in old rubble piles from the 70's

And now they have these boat gold diggers...

They don't look for the great deposits anymore! Always in the regions where the old diggers MISSED IT!

cossack55's picture

They quit making new dirt a long time ago.

Dr Benway's picture

Ha! That tungsten bar photo on ZH was a major eyeopener. But the funniest part was that in the comments section, someone had found a listing on eBay for very similar looking tungsten rods.

Anyhoos in other article it said 51,000 ton reserves could be gone in 20 years. I wonder what the psychological effect on people is when there is no more gold to be mined.

BigJim's picture

That leap in US production from the '80s until the '90s... does anyone know if this was actual production, or the mines selling forward?

Flakmeister's picture

It is a reflection of the lead in time for a mine.... Gold at $400 in the 70's stimulated a massive exploration effort which resulted in increased production...

The point being made is that given the recent price increase, the "massive" exploration boom hasn't found any properties that can increase production...

BigJim's picture

Thanks, yes, that makes sense... but it is a huge jump.

I've read that the collapse and continued low price in the '80s and '90s was in part due to central banks leasing it out to bullion banks who then sold it multiple times to unallocated accounts, and also mines hedging price by selling production forward. I'm wondering if any of that astonishing increase in 'supply' is actually due to the latter....

Flakmeister's picture

Nope there was a similar frenzy in oil drilling (that did not result in such a dramatic increase) but it sure led to a helluva bust in Texas....

It was all about nailing the low hanging fruit in Nevada....

So between CB practices, falling interest rates and increased supply, it is no wonder that gold was bitchslapped from 800 to 250. Classic market response combined with some manipulation...

I follow a lot of small E+P companies, 1-2 grams per tonne in a open pit is now considered ok ore... The bottom of the gold barrel is being scraped, so while there is still a lot of gold in the ground it is of increasingly poorer grades....

Take note of the South African production and take into account that their motherlode is now ~13,500 ft below the surface and the grade is ~5-8 g/tonne...

Hint: google Anglo Ashanti

DosZap's picture

Take note of the South African production and take into account that their motherlode is now ~13,500 ft below the surface and the grade is ~5-8 g/tonne...

Your dead on, SA deposits are about done for,a LOT of their mines are now at 7 miles deep.

Flakmeister's picture

Not quite that deep but your point is taken....

Bringin It's picture

Flakm -

between CB practices, falling interest rates and increased supply, it is no wonder ...

You mean rising interest rates don't you?  Volker's Saturday Night Massacre killed the party.

 

Flakmeister's picture

Gold was rising the same time as the 10 yr yeild for a while and you do agree that in the 80's that interest rates and the POG were both in a downtrend?

Bringin It's picture

You are cherry picking the time following volker's extraordinary move.  TNX was over 14% for a lot of the 80's.  Nothing like that can happen now.  No one, no state, could make the vig.  Yes people got out of gold when they saw they could get 14%, the expected inverse corelation.

AnonymousCitizen's picture

Why do you think they stopped making incandecent light bulbs?

All the tungsten is needed in Fort Knox, KY.

MillionDollarBonus_'s picture

As long as gold and silver trade at such enormous premiums to fair value, I'm afraid that global production will continue to rise. Not only this, but people are starting to realize that gold is in fact NOT a safe-haven after all, and that the true safe-haven is and always has been US treasuries.

To those golbugs who think they've missed the treasury boat: DON'T WORRY - IT'S NOT TOO LATE! People were saying the treasury 'bubble' was going to collapse when the 10 year was 3%, and then 2.4%, and then 1.7%. *Sigh* ... I've seen this happen over and over again. This treasury bull market is going to continue for as long as there is any turmoil in the global economy, and sadly most goldbugs will only wake up when the 10 year yield is sub 0.5%. This will be the biggest wealth transfer in history, and it's sad that doomer goldbugs don't want to be part of it.

Snidley Whipsnae's picture

"To those golbugs who think they've missed the treasury boat: DON'T WORRY - IT'S NOT TOO LATE! "

It's not too late ... because we havent reached PEAK PRINTING PRESSES!

tocointhephrase's picture

MDB, how are your FB shares doing?

FEDbuster's picture

Well I'll be damned, I have to agree with MDB on something.   As long as we have the kind of margins that now exisit in gold, you will see production continue to climb.  Like oil, gold projects become more viable as the price rises and cost of mining stays the same or goes down.   Right now there is an $1,200./oz.  spread between mining cost and retail physical gold.  The new gold projects will cost more to mine and may be less "rich" than past mines, but they will find more gold.

The FED on the other hand, will continue to create trillions in fiat FRNs, as long as the zero key on Bernanke's keyboard works.

Gold will always have value, FRNs will inflate to nothing.

"It took the FED a hundred years to devalue the dollar 97%, the next 97% won't take as long", Dr. Marc Faber

MillionDollarBoner_'s picture

There are those who argue that gold is supressed down to the point where its just vialbe to keep mining it. If they could jam it down further and still keep the business alive they would do so but they can't. Plus if they kill the business then supply dries up, price shoots up, self-defeating. You can see the logic.

MillionDollarBonus_'s picture

This is another thing that 'bugs' me about goldbugs. The Federal Reserve Bank of the United States does NOT "print" money, as doomer goldbugs, nerdy libertarians and silverbug hillbillies like to put it. The Federal Reserve bank actually lends money to the primary dealers - a group of top tier investment banks and elite broker dealers - who then choose to buy treasuries and NOT gold, when presented with a choice of investments. This is because the primary dealers understand that treasuries are and always have been the true safe-haven, a status which is validated by a 30 year track record. Gold is for doomer rednecks who don't know how to invest.

jesse livermoore's picture

wow  thirty year track record.    gold has a 5000 year track record   you mutt

 

tocointhephrase's picture

"you mutt" 

no need for niceties!

fockewulf190's picture

Well, my personal stack sure as shit hasn't peaked yet... I just ordered up more shiny Phyzz. I don't know anyone who doesn't sleep better knowing they have Phyzz backing their ass up.

who-is-john-galt's picture

You are right, they don't "print" money.  They create 1s and 0s that is worth the same as dollars.  

TWSceptic's picture

They lend it, but not from their own money, they first have to create money out of thin air. I'm posting this so people new to this understand the difference between normal lending and creating money from nothing to lend. It may be funny for you to troll, but misleading people is not that funny.

 

I also want to warn people new to investing that treasuries are in a bubble, and it will eventually pop. Unlike gold which is still not even close to bubble phase.

TaxSlave's picture

Yes, TWS, and it resolves this way:

It's not my debt, and I'm not going to pay it.

Slavery and coercion promised far into the future and far in excess of what is possible to extract from the victims are not safer investments than the subjective value of something real, which will eventually be worth something.

Those who invest in Slavery Bondage will get (part of) what they deserve: They will lose every dime.

zonkie's picture

Lends money from where? From thin air, this is called printing even if a real press may not be involved.
The Fed balance sheet rises.
As for silver hillbillies, has any other asset class risen as much as silver in last 3 years?
Silver will touch new peaks as this lax monetary policy continues, though treasury yields shall fall too because of sovereign risk abroad.
But what happens when sovereign risk becomes apparent here and what happens when USDs reserve status is questioned by more?
Gold and Silver will eventually have a last laugh if the trend continues.

MillionDollarBoner_'s picture

"Gold is for doomer rednecks who don't know how to invest."

Man...one day soon you are going to eat those words...

FEDbuster's picture

He may have to eat his words, but you can't eat your gold.  Silver and gold are nice, but first buy some rice.

Blammo's picture

I think we know they don't actually print cash paper,MDB. Can you say metaphor?

tocointhephrase's picture

ANSWER THE QUESTION! HOW ARE YOUR FB SHARES DOING?

High4Life's picture

'Lends' --- you mean create out of air, and then multiply by 1000 through the banksters' matrix.  If the so-called lending from the Fed and another central bank involves 'physical' or 'real' instead digital, price on paper will sky rocket to thje moon since you need to print all those trillions...

I think I am high, but this lunatic is at a total different level...The Paul Krugmen Level 

MeelionDollerBogus's picture

you and I both know as soon as money is printed or spent it's as good as the Fed printing even as the electronic ledger is drained to supply the printed side after the lending issuance using electrons.

There is no functional difference.

Paper or electrons are information carriers.

Fiat declared value is the information CONTENT in the carrier-medium - paper or electron.

It is printing but it's electronic printing. The only way it can not be printing is if someone else loses x dollars for every x dollars issued by the Fed. Instantly and immediately.

Treasuries are no safe-haven, they are a high-risk asset. The current use of bonds and especially treasuries is risk-collateral in highly leveraged margin trades in derivatives. That's why over-buying such units with electro-printed dollars is driving up inflation and driving up systemic instability as various levels of rehypothecation in London and leveraged trading at Goldman and JPM get ready to slam inflation over 50% and then slam deflation to get a bailout to the tune of -60%.

Peter Pan's picture

It's not peak oil, peak gold or any other peak I am worried about other than the problem of peak society which is where we are virtually at.

There is little in the collective psyche of nations that gives me much hope of an enlightened solutionor at least of an enlightened process that might lead to society regaining traction.

And so that great old saying about death and taxes will have to amended to include debts as well.

Shylock this time round will collect his pound of flesh even if it means destroying the debtor and the system.

 

 

sdmjake's picture

Sigh, you've "seen this happen over and over again". Damn, you must be old.

Looking at the ^TXN chart, In January 1962 it was at 3.86---for twenty yrs it inexorably slid to 15.84 (Jan1981) and then spent 30 yrs moving back to 3.83 in Jan2010.

If you are seeing 50yr cycles over and over, I'm gonna have to start calling you MethuselahDollarBonus...(and, based on your ridiculous posts, 'Meth Use' explains alot) 

i-dog's picture

LOL!! ... You owe me a new keyboard. Peak insanity is indeed on its way....

MeelionDollerBogus's picture

Premium? Fair value of gold is certainly over 2500 / oz. With a -$900 premium gold is a great value buy.

WmMcK's picture

So real estate can't go down either.

LawsofPhysics's picture

depends on what you price it in.  Relative to fiat, everything will always go up so long as there are no real consequences for bad behavior.

same as it ever was.

FEDbuster's picture

Priced in FRNs real estate is down something like 35% from 2007 nationwide.  Priced in gold it's down even more.  Everything goes up and down in price and value depending on a number of things.  Gold and real estate are not exempt.  Fiat FRNs have been devalued 97% over the past 100 years, so most things of value have gone up in price when priced in FRNs.   The trick is buying something that goes up in price and value faster than they can devalue the currency.  Manipulations of asset classes are part of the investment equation. 

anarchitect's picture

Gold's high stock-to-flow ratio means that peak gold isn't all that important. Under the gold standard, the trend was gradual deflation, 1%-2% a year, because increase in the gold supply didn't keep up with economic and population growth. If a gold standard returned along with peak gold, this gradual deflation would be slightly higher, say 3% a year.

Rich Bagg's picture

What a crock of BS.

When will there be a Peak in calling things a Peak?

 

 

drivenZ's picture

I'm predicting 10% growth in calling things Peak over the next 3-5 years.  

greggh99's picture

You're right. It gets much harder not to call a spade a spade, when that spade is finally shoved in your face.

greggh99's picture

When the human species falls back into a state of ignorance and believing in magic. But don't despair. You may indeed get your wish.

narapoiddyslexia's picture

"falls back into...?"

That's a joke, right?

LawsofPhysics's picture

Exactly what I was thinking, peak stupidity.

Overfed's picture

I wish there were such a thing, but alas, there is not. We're going to find that stupidity is virtually inexhaustable.

hidingfromhelis's picture

Sadly, it is accepted, shared, indoctrinated, and re-hypothecated.  I wish there was a peak!  Wait, there is.  Too bad about the, "On a long enough timeline..." part that follows.