Investment capital is flowing into gold stocks and Frank Holmes, CEO of U.S. Investors, said that this may be due to peak gold. “What we’re witnessing now is money going into gold stock ETFs,” Holmes said. He said that there is currently no breakthrough technology like there was for fracking in the mining industry, so gold production is likely to continue to plateau and eventually decline, according to the theory of peak gold.
He added that investors are likely to see gold stocks move up as more capital continues to flow in, which is usually a precursor to the bullion rallying.
South African Gold Output Falls Most Since February 2017
Gold output in South Africa, once the world’s biggest producer of the metal, declined the most since February 2017 in May.
Production dropped 16.2 percent from a year earlier, compared with a revised 5.8 percent contraction in April, Pretoria-based Statistics South Africa said Thursday in a statement on its website. That’s an eighth straight month of decreases.
Total mining output shrank for a third month, dropping 2.6 percent from a year earlier compared with a revised 4.4 percent retreat in April, it said. Production of platinum-group metals, of which South Africa has the largest known reserves, increased for the first time in six months, expanding 9.6 percent from a revised 6.3 percent contraction a month earlier.
Aging infrastructure, reserve depletion and accidents have raised costs and curbed mines’ output in South Africa. Mining companies came under added pressure late last year and in the start of 2018 from the stronger rand and have responded by closing shafts and cutting thousands of jobs in a labor-intensive industry. Ana Monteiro (Bloomberg)
Peak Gold is Here – Everyone’s Hoarding Gold – A Double Whammy!
Tom Lewis: The tiny nation of Kyrgyzstan has big plans. Caught between its giant trading partners, China and Russia,Kyrgyzstan is stockpiling gold. It wants to increase gold from 16 percent to 50 percent as part of its international reserve.
Tolkunbek Abdygulov of the Kyrgyz Central Bank has stated that any currency, whether dollars, rubles, or yuan, has become too vulnerable. The small mountain nation, with a population of 6 million, relies heavily on Russian and Chinese imports. With the possibility of global trades war on the horizon, Kyrgyzstan prefers to protect its financial stability by amassing gold. It suffered during the ruble devaluation in 2015, and it is turning to gold as a hedge against any renewed economic upheaval.
Kyrgyzstan is merely following in the steps of other, larger nations, such as Russian, India, and Turkey, who are also increasing their gold reserves. The U.S. and Germany both have reserves that are 70 percent of its central bank holdings. If there is a trade war, countries are prepared.
Gold has traded steadily and unspectacularly for the past decade, but looming tariffs and trade sanctions have pushed gold out of the doldrums and into the stoplight.
Kyrgyzstan, one of the few post-Soviet republics with its currency, has been buying gold since 2014. Abdygulov has kept the nation’s currency, the som, relatively steady and recognizes that stockpiling gold will serve as a hedge against inflation.
Kyrgyzstan is smart to worry. Following President Trump’s promise to institute tariffs on imports, Russian has sold off half of its U.S. Treasury bonds, more than $47 billion, in retaliation. At the same time, Russia’s central bank has increased its gold reserves to 62 million ounces, at a value of $80.5 billion, in an effort to diversify its reserves in view of possible geopolitical unrest. Russian is less interested in increasing return on its investments. The U.S. bonds yield a higher return than gold in 2018, but selling off the Treasury bonds lessens Russia’s dependency on the U.S. dollar. Russian’s hoarding of gold has long been viewed as an attempt to devalue the U.S. dollar as the reigning global currency.
China is another country that would like to see the U.S. dollar replaced on the global financial market. If China were to sell off its $1.18 in U.S. Treasury bonds, it could go a long way in accomplishing that goal.
Russia’s increase in gold holdings has made it a global gold powerhouse. It has triple the gold as a percent of GDP, or 5.6 percent of the world’s available precious metal.
This is a thought-out, long-term plan for Russia, and U.S. trade sanctions are only a part of the picture. With large gold reserves and a relatively small international debt, Russia has positioned itself as a strong global financial force. It not only wants to strengthen its own currency, the ruble, but it is preparing itself for the collapse of the U.S. dollar. The future won’t be the dollar vs. the ruble. It may very well be East against West, and East is in an extremely favorable battle position.
Peak Gold – Major suppliers sounding the alarm on a global gold shortage
- The people responsible for supplying the world with gold say we are running out of it.
- Mining companies are no longer finding new deposits of gold to replace their aging mines.
- There’s not a reasonable substitute for gold.
Simon Black: A few months ago I sent you a note explaining that major gold discoveries are shrinking.
Simply put, mining companies are no longer finding vast, new deposits of gold to replace their aging mines.
I quoted Pierre Lassonde, the billionaire founder of gold royalty giant Franco-Nevada and former head of Newmont Mining:
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.
Pierre Lassonde is one of the most well-respected and knowledgeable mining experts in the world. And he thinks we’re reaching ‘peak gold’.
But he’s not alone.
Last month, Rudy Fronk, Chairman and CEO of Seabridge Gold noted:
“Peak gold is the new reality in the gold business with reserves now being mined much faster than they are being replaced.“
Nick Holland, CEO of South Africa’s largest gold producer Gold Fields: “We were all talking about how production was going to increase every year. I think those days are probably gone.“
Kevin Dushnisky, President of mining giant Barrick Gold: “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.“
But the biggest warning comes from resource legend Ian Telfer, chairman of Goldcorp. In an interview with Financial Post, Telfer said:
“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. Well, either this year it starts to go down, or next year it starts to go down, or it’s already going down… We’re right at peak gold here.”
It’s hard to pinpoint a top or a bottom. But there is an interesting opportunity here since gold has fallen in price over the last several weeks thanks to an inexplicable surge in the US dollar.
The long-term fundamentals seem pretty obvious- the people responsible for supplying the world with gold are saying the world is running out of gold and that supply is declining at an alarming rate.
With a commodity like oil, technology tends to solve the problem of declining supply through more efficient production methods.
When ‘peak oil’ started becoming a problem 10 years ago, the industry developed new fracking and horizontal drilling technologies. And other industries like solar and wind began developing better substitutes for oil.
But there’s not really a substitute for gold. And the biggest players in the space are saying we’re running out.
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