Is Gold About To Glitter?

Is Gold About To Glitter?

By Gerald Harris

Demand for gold is increasing, and mining companies have spent $54.3 billion on exploration over the past decade. Nevertheless, despite these efforts, new discoveries of the yellow metal have not kept up with demand, and known reserves are slowly becoming depleted.

There were 263 major gold discoveries made in the past 28 years, each containing one million ounces or more. However, half of these were made back in the 1990s. The number of new deposits found since then has been dropping.

According to Gold Telegraph, there were only 16 major discoveries reported from 2000 to 2002, and these produced 108.3 million ounces of gold, an “amount below the average finds of the 1990s.” This trend of fewer significant discoveries has continued since then.

By 2010, only 18.6 million ounces of gold was discovered, a major drop from the 61.5 ounces found in 2009. Meanwhile, remaining reserves at producing mines continue to drop, and so has the amount of gold being mined annually.


Is Higher Gold Ahead?

What does the combination of higher demand, falling production, and declining reserves of gold suggest about the price?

“Unless significant new discoveries are made, the amount of available gold could decrease in the near future, [in effect] raising the demand for the metal even further… Scarcity invariably results in higher prices, and the decline in global gold [reserves] makes a price increase almost certain,” adds Gold Telegraph.

By 2010, only 18.6 million ounces of gold was discovered, a major drop from the 61.5 ounces found in 2009

Minex Consulting describes these trends even more bluntly: “The gold industry is struggling to replace the ounces it mines,” it says. “Over the last decade gold production exceeded gold found,” and “This is not sustainable. And at the same time, the average grade of gold found and mined in the world continues to decline,” another bullish factor for gold.

The downward trend in reserves is unmistakable. During the 1990s, approximately 1.1 billion ounces of gold were discovered. However, from 2000 to 2014 this number has dropped to only 605 million ounces.

Australia, one of the world’s largest gold-producing countries, is experiencing this problem big time. In fact, it’s reported that much of the gold in its once-prolific northern Goldfield region has already been depleted.

In order to reverse or to at least halt this trend, miners are going to exceptional lengths – more correctly, exceptional depths. They are searching for new deposits as much as three kilometers below the surface of the Earth – a depth that is unprecedented. Even so, finding new deposits of gold is becoming more difficult and more costly to develop when they are found.

Richard Schodde, managing director of MinEx, said that Australia’s gold-mining output may decline by as much as 50 percent in the next eight years; by 2057 only four gold-mining companies are expected to still be in business there. Some other gold-producing countries are facing similar problems.


Much Longer Time Frame

These are not the only changes the industry is experiencing. Another is the time it takes to bring a new mine into production.

Developing a new mine has always been a time-consuming project but is even more so these days. Between 1985 and 1995 it took on average eight years from the time a gold discovery was made to bring a property into production; this was considered a long time back then.

But between 1996 and 2005 this time frame increased to 11 years. By 2013 it increased to 18 years. More recently, the time required to bring a new field online has increased still more and now is nearly 20 years.

It should be noted that not all of the gold discoveries that have been made will actually go into production. According to mining.com, “only a third of the discovered gold has been upgraded to reserves or has already been produced. In addition, “many of these deposits face significant political, environmental, or economic hurdles,” and as a result, “the amount of gold becoming available for production in the near term is certainly much less” than the amount that has been reported.

Gold is one of the rarest elements in the world. Only 0.003 parts per million of the Earth are gold, and recovering those is becoming more expensive and challenging.

“We’re having a heck of a time finding gold,” says Goldcorp CEO Ian Telfer. BloombergMarkets points out that “the amount of gold discovered [in 2016] was down 85 percent compared to 2006.” There haven’t been any developments in the past few years that indicate this downward trend will change any time soon.

The price of an ounce of gold on May 10 was approximately $1,320. For the year 2018 to date gold has been a slightly better performer than the Dow Jones; however, anyone who opted for gold over stocks back in 2011, when the yellow metal reached an all-time high of approximately $1,920/ounce, has not only missed out on the exceptional bull market in stocks since then but is sitting on a substantial loss.

Even so, gold remains a popular investment choice in some circles. For example, in China, the world’s largest importer of gold, demand for bullion is off to a strong start in 2018. Russia is hoarding gold at the fastest pace in 12 years. Russia has been steadily building its gold reserves and has purchased an additional 300,000 ounces in March, bringing its stash of gold reserves to nearly 2,000 tons. Of course, many individual investors also purchase gold when they can.

No one knows when – or if – gold will make a big move in the future. Still, given recent trends in the industry, investors may want to keep this precious metal on their watch list. Will the relative quiet in the gold market last indefinitely? Could a bull market begin overnight? The coming months could be very interesting.

 Sources: bloomberg.com;
goldtelegraph.com;
minexsconsulting.com;
mining.com
money.cnn.com;
usmoneyreserve.com;
zerohedge.com.


Gerald Harris is a financial and feature writer. Gerald can be reached at geraldhrs@yahoo.com

 

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