Peak Gold Could Be Bullish for Gold Prices
It may be a great time to be a gold bull; gold prices could be setting up to soar immensely.
There’s a basic economic reason behind this; there’s only a limited amount of gold in the ground.
We could be reaching a point where there isn’t much of the precious metal left in the ground to be discovered, and production is declining. In other words, we might be reaching peak gold.
It’s not me making this up; look at what major mining companies are saying. Keep in mind, major miners are actually looking for gold around the world, so they have a much better idea than most about what’s happening.
Consider what Ian Telfer, the chairman of Goldcorp Inc. (NYSE:GG), said about gold discoveries and production in the coming years.
“If I could give one sentence about the gold mining business…it’s that in my life, gold produced from mines has gone up pretty steadily for 40 years,” said Telfer in a recent interview. “Well, either this year it starts to go down, or next year it starts to go down, or it’s already going down.” (Source: “’We’re right at peak gold’: All major deposits have been discovered, declares Goldcorp chairman,” Financial Post, May 16, 2018.)
Telfer ended with, “We’re right at peak gold here.”
Goldcorp isn’t the only major mining company saying that we could be nearing peak gold.
For instance, Kelvin Dushnisky, president of Barrick Gold Corp (NYSE:ABX)—one of the biggest gold producers with global operations—said, “Falling grades and production levels, a lack of new discoveries, and extended project development timelines are bullish for the medium and long-term gold price outlook.” (Source: “World running out of gold & there’s no substitute, experts warn,” RT, July 12, 2018.)
Why Does Peak Gold Matter?
As I said earlier, peak gold is when production of gold declines, be it due to low gold prices, fewer discoveries, and so on and so forth. In simple words, it’s a major supply constraint.
Dear reader, this is happening around the same time that the demand for the yellow precious metal remains solid.
We currently have central banks wanting more gold. They have been a consistent, big gold buyer for a while now. And it doesn’t look like they are going to step back anytime soon.
Central banks are buying the yellow metal because gold reduces volatility in their foreign exchange reserves. Obviously, don’t expect them to announce when they will be buying gold, and how much; just look at their actions.
Judging by their actions, central banks have been loud and clear that they don’t care about what price gold is trading at; they just want to buy it.
In addition to this, we see high demand for gold in countries like India and China. There’s also increased investment demand. We see net inflows in gold-backed exchange-traded funds (ETFs).
Looking at everything, it seems like a perfect storm could be brewing in the gold market that could send gold prices soaring immensely. Peak gold could make $2,000-an-ounce gold a reality much sooner than expected.