Peak Gold

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[Originally published: November 12, 2009]

We’re hitting resource limits left and right. Read the following article, it raises many salient points about natural resources and how we’ve mined them to exhaustion. The authors of The Limits to Growth were right, on a finite planet there are limits to growth, and we’re hitting them sooner than the authors anticipated. The situation with gold is exactly the same as with oil, lower quality reserves extracted at an ever higher price. This situation also applies to silver, since silver is rarely mined for itself as it exists in mines for other metals, especially copper and gold. What happens to gold happens to silver too.

I would start buying some silver and/or gold with your spare cash. You can get American Eagle 1 ounce silver bullion coins for about $20 each and 1/10 of an ounce American Eagle gold coins for around $150 each. One ounce Gold American Eagles run about $1175. Don’t wait, even though they’re records, these prices aren’t going to stay this low for long.

NB: Yes, the prices may come down, even up to 20%. That’s called “a buying opportunity”. In the long run you’ll be quite happy.

I know nobody listens to me, but I’m compelled to share what I know. You’re quite free to think I’m nuts. More gold and silver for me then, I guess!

Barrick shuts hedge book as world gold supply runs out – Telegraph

Barrick shuts hedge book as world gold supply runs out
Global gold production is in terminal decline despite record prices and Herculean efforts by mining companies to discover fresh sources of ore in remote spots, according to the world’s top producer Barrick Gold.
By Ambrose Evans-Pritchard, International Business Editor
Published: 7:20PM GMT 11 Nov 2009

Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run.

“There is a strong case to be made that we are already at ‘peak gold’,” he told The Daily Telegraph at the RBC’s annual gold conference in London.

“Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore,” he said.

Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa’s output has halved since peaking in 1970.

The supply crunch has helped push gold to an all-time high, reaching $1,118 an ounce at one stage yesterday. The key driver over recent days has been the move by India’s central bank to soak up half of the gold being sold by the International Monetary Fund. It is the latest sign that the rising powers of Asia and the commodity bloc are growing wary of Western paper money and debt.

China has quietly doubled holdings to 1,054 tonnes and is thought to be adding gradually on price dips, creating a market floor. Gold remains a tiny fraction of its $2.3 trillion in foreign reserves.

Gold exchange-traded funds (ETFs) โ€“ dubbed the “People’s Central Bank” โ€“ have accumulated 1,778 tonnes, making them the fifth biggest holder after the US, Germany, France, and Italy.

Ross Norman, director of theBullionDesk.com, said exploration budgets had tripled since the start of the decade with stubbornly disappointing results so far.

Output fell a further 14pc in South Africa last year as companies were forced to dig ever deeper – at greater cost – to replace depleted reserves, not helped by “social uplift” rules and power cuts. Harmony Gold said yesterday that it may close two more mines over coming months due to poor ore grades.

Mr Norman said the “false mine of central banks” had been the only new source of gold supply this decade as they auction off reserves, but they are switching sides to become net buyers.

Barrick is moving fast to wind down the remaining 3m ounces of its infamous hedge book over the next twelve months, an implicit bet on rising gold prices over time.

Mr Regent said the company had waited too long to ditch the policy, which has made the company enemy number one among ‘gold bug’ enthusiasts. The hedges oblige Barrick to deliver part of its gold into futures contracts set long ago at levels far below today’s spot prices.

The strategy worked well in the falling market of the 1990s, but has cost the company dear in lost profits this decade. “Hindsight is always 20/20,” said Mr Regent, who was appointed from the outside earlier this year.

Barrick bit the bullet in the third quarter, taking a $5.7bn charge against earnings on hedge contracts. Liberation is at last in sight. In 2001 the hedge book topped 20m ounces.

Mr Regent said the hedge policy has weighed badly on the share price and irked investors, becoming a bone of contention at every meeting. The financial crisis brought matters to a head as markets fretted about counterparty risk. “It was clear to me that there were a significant number of institutions who wouldn’t invest in Barrick because of the hedge book,” he said.

Barrick produced 1.9m ounces of gold last quarter, down from 1.95m a year earlier. Costs have been “trending down” to $456 an ounce, though rising energy prices pose a fresh threat. Total reserves are 139m ounces, far ahead of rival Newmont Mining at 86m.

The hedge book venture has not been a happy one, but those who predicted that Barrick would eventually “blow up” on its contracts may owe the company an apology.


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2 thoughts on “Peak Gold

  1. Trends are accelerating! When I posted the above article, gold was at about $1,150 an ounce, today it’s about $1,650. That’s not stopping these guys from buying:
    Central Banks Join Rush to Gold

    provided by
    wsjlogo.gif

    by Liam Pleven, Se Young Lee and In-Soo Nam

    Central banks are ramping up their gold buying as they seek to diversify their reserves away from the dollar and other beleaguered currencies.

    South Korea became the latest government to disclose a big bullion purchase, saying Tuesday that it recently bought 25 metric tons – more than doubling its holdings to 39 metric tons. Mexico, Russia and Thailand have also been major buyers in 2011.

    This year, governments have almost tripled their net gold purchases, increasing their holdings by 203.5 metric tons this year, up from a 76-metric ton rise last year, according to the World Gold Council, an industry group backed by miners.

    The demand marks a major shift in central banks’ thinking about gold. Increasingly, they see bullion as protection against risks posed by declining paper currencies and global economic upheaval, and their vast resources and conservative bent make them a powerful force in the gold market.

    [More from WSJ.com: Gold Can’t Lose]

    While gold is an asset that does not generate income, that shortcoming is less glaring among historically low interest rates.

    Before 2010, governments had on balance been shedding their bullion for two decades, during which gold was seen by some as a relic. According to data from GFMS Ltd., a metals consultancy, 1988 was the last year that official holdings increased.

    “We definitely have seen a sea change” in central bank attitudes toward gold, said David Greely, chief commodities strategist at Goldman Sachs Group. Central bank buying provides “longer-term support for gold prices,” he said.

    The purchases have helped drive gold to record levels. Gold settled Tuesday at $1,641.90 per troy ounce, a new all-time high in nominal terms, though still far below the inflation-adjusted record of $2,395.03, hit in January 1980. Prices rose $22.90, or 1.4%, on Tuesday in New York trading, and are now up 16% this year. The recent rise is extending a rally that began in 2001, multiplying gold prices six-fold in that period.

    By becoming net buyers, central banks are just starting to catch up with the private sector, which started to warm toward investing in gold years ago.

    [More from WSJ.com: Made in China: Fake Stores]

    Private investor bullion holdings inched ahead of official holdings at the end of 2009, and comprised about 18.7% of total gold holdings at the end of 2010, compared to 17.4% for the official sector, which includes central banks and the International Monetary Fund, according to GFMS and the gold council.

    But both individual investors and world governments are motivated by similar concerns, including a fear that economic woes in the developed world are eroding the value of the U.S. dollar and the euro, undercutting what had been seen as stores of wealth. That is reviving interest in gold as a safe haven.

    MI-BK660_SKGOLD_G_20110802182706.jpg

    Many emerging nations also have a relatively small percentage of their reserves in gold, compared to the developed world. The U.S. has 74.7% of its reserves in gold, compared to 1.6% for China and 8.7% for India, according to the gold council.

    Rapidly-growing Asian nations have also seen their foreign currency holdings swell as their economies outpace the rest of the world, providing another motive for diversification.

    [More from WSJ.com: Who Gets Drunk and Why]

    In South Korea, which has the seventh-largest currency reserves in the world, the new move into gold reflects concerns about global economic instability, which have been exacerbated by the credit crisis in Europe and fears of a default in the U.S.

    The Bank of Korea on Tuesday said it bought the gold from the global market in June and July. Its gold holdings now represent 0.7% of the country’s foreign-exchange reserves, which stood at a record $311 billion at the end of July. “The gold purchase, as a safety net, will help us cope with volatile global financial markets and enhance investor confidence in Korea in times of crisis,” said Hong Taeg-ki, chief of the BOK’s reserve management group.

    The central bank says it wasn’t motivated by the U.S. debt ceiling negotiations and denied that it is specifically seeking to diversify away from the dollar. Nevertheless, the bank joins a growing list of central banks around the world that have been increasing their gold holdings in the wake of the global financial crisis.

    โ€”Jason Dean in Beijing, Martin Vaughan in Singapore and Richard Boudreaux in Moscow.

    Write to Liam Pleven at liam.pleven@wsj.com and Se Young Lee at vincent.lee@dowjones.com

    Someone emailed me a month or two ago asking about how to buy gold and if I thought it was still going to go up. I sure hope they bought some!

  2. A joke is for sure. This chart is from Shadow Government Statistics. All they’re doing is using the original definition of CPI from the 1960’s without all the manipulations the government has made in the meantime to understate inflation(to keep inflation adjusted stuff like SSI payments low).

    Notice how the government’s CPI is around 3%, but SGS’s real CPI is more like 12%? Which one more reflects your experience? So in reality, since wages are flat for the last 30 years, we’ve all lost (on average) about 50% purchasing power since 1980.

    It’s all part of the con game, it helps keep the confidence of the marks up. We’re the marks, the government, banks and corporations are the con-men. ๐Ÿ˜›

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