Experts Suggest A Gold Shortage May Be Looming

Last May, the head of one of the largest gold mining companies declared that we had found all the gold that is to be found. Goldcorp CEO Ian Telfer told the Financial Times that peak gold is right here with us.

Now another gold expert has reiterated those views. Pierre Lassonde, former head of another giant miner Newmont Mining and founder of gold royalty giant Franco Nevada has concurred with Telfer’s views by providing this piece of evidence:

‘‘If you look back to the 70s, 80s and 90s, in every one of those decades, the industry found at least one 50+ million-ounce gold deposit, at least ten 30+ million-ounce deposits, and countless 5-to-10 million ounce deposits. But if you look at the last 15 years, we found no 50-million-ounce deposit, no 30-million-ounce deposit and only very few 15 million ounce deposits.”

The peak gold phenomenon the two gentlemen are talking about refers to the point in time when the gold mined every year will begin to shrink, signaling a watershed moment in gold’s history given that gold volumes coming out of mines has increased consistently since the 1970s.

Other Gold Experts Concur

It’s easy to blow off the views of the two gentlemen as hyperbole and the musings of a contrarian with vested interests. Except that they are not the only people in the mining business who hold that position. Seabridge Gold chairman Rudy Frink recently said that gold reserves are shrinking fast.

Several mining experts have been expressing concern that new gold reserves are not being discovered at a fast enough clip to replace aging mines.

And as Barrick Gold’s Kevin Dushnisky noted, ore grades and production levels continue to deteriorate as discovery of new mines falls off. He added that longer development timelines for new reserves are bullish for gold outlook in both the medium- and long-term.

Peak Gold Doubters

There are two main arguments advanced by the peak gold doubters. One is that the same view was held by the oil experts since the 1950s when no large reserves were discovered for decades. Of course, new technologies like hydraulic fracturing turned that around in a matter of years. The same thing could conceivably happen to gold. For instance, a new revolutionary technology promises to recover as much as 300 tonnes of gold from E-waste.

Another argument is that gold production has never been smooth over the past decades, and the current dip could merely be a blip in the bigger scheme of things. In fact, there have been three periods over the past century when gold production declined by as much as 30 percent before picking up again. It’s therefore possible that what looks like a dip in production could be explained away by the boom-and-bust theory.

But what these arguments fail to take into account is the fact that discovery of new reserves continued unabated during past gold dips. Gold production is an economic activity that’s controlled by the same factors that loom large over other commodities, including geopolitical uncertainties and profitability. But as long as no significant reserves are being discovered and brought online, it’s only a matter of time before production suffers.

After all, there are no substitutes for gold and no new mining technologies have been discovered that can change the current trajectory of diminishing reserves. South Africa provides a prime example. Once the world’s biggest producer of the yellow metal, South African reserves have declined so much that experts now predict that the country will run out of all it accessible gold reserves in a mere 39 years.

It’s not easy to point an exact top or bottom for gold production. But as things stand now, the looming decline presents an interesting opportunity for investors.