Bullion Bulletin: Peak gold is a myth

By now it’s no news that the world’s resources are finite. So, are we approaching ‘peak gold’, that point when gold production starts to decline? Or has it already happened?

Recently published scientific research purports to show that the world will run out of newly mined gold by 2050 – less than 30 years from now. For some that’s a horror story, for others a promise of future wealth as gold prices soar; much as we hate to spoil the party the ‘gold running out’ story is old and almost certainly inaccurate. Simple economics means there will always be gold around – at a price.

Furthermore, this is an old story. Aaron Regent, then president of the giant gold producer Barrick, said in 2009 that there was a “strong case to be made that we are already at ‘peak gold'”. Almost a decade ago the (former) president and CEO of Goldcorp, a Canadian gold miner since acquired by Newmont, was interviewed by Mining.com; the headline was “we have hit peak gold”. Peak gold has been around a while. World mined gold production has ‘peaked’ four times since 1900 – in 1912, 1940, 1971 and 2001, each peak higher than the previous.

There’s no doubt that getting gold out of the ground and refining it has become much more costly. One source estimates that the ‘all-sustaining costs’ (AISC) per ounce in 2000 was $300, and rose (in the first quarter of 2022) to $1,232.

But newly mined gold is not the only source of supply; recycled gold is a big component, and readily available. The biggest supplier of recycled gold is also a country with a huge appetite for gold – India. Households in India may collectively hold as much as 25,000 tonnes of gold, most in the form of heavy jewellery that is reserved for special occasions such as weddings. This gold plays two roles in India – ostentatious demonstration of wealth in decorative form, and as a means of saving that can be cashed in (recycled) when needed, when prices climb, or when fiat currency turmoil erupts.

The easy days of low-cost mining ended long ago – and new rich discoveries are becoming rare. Even when a new gold discovery happens (and exploration is constant) it takes around 20 years between discovery and producing an ounce of gold. Getting hold of new gold is more expensive, because more difficult, as old seams are depleted; what gold there is derives from more unstable countries, which pushes up the mining risk premiums. At the turn of the Millennium, Australia, Canada, South Africa and the US accounted for almost 50% of all gold mined; today they produce less than 25%, while China and Russia are the two biggest producers.

S&P Market Intelligence said in May last year that its “major gold discoveries identified 341 deposits discovered over the 1990-2021 period, containing 2.7 billion ounces of gold in reserves, resources and past production, up from our 2021 analysis of 329 deposits containing 2.58 billion ounces in 1990-2020”.

As newly mined gold becomes scarcer – an inevitability it seems – prices are likely to rise, simply on the basis of supply undershooting demand. But the cure for high prices is high prices – high prices will stimulate greater exploration efforts and more recycling. ‘Peak gold’ does not mean ‘no more gold’.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.