So lets chat about gold for a minute. If scarcity is an attribute, then gold’s got a lot of it. Jim Rickards was recently interviewed and he told the host that while visiting several of the most major gold refiners/minters, all of them told him that “there’s just no gold around.”
One of the things that bitcoin lovers suggest about their digital currency is that there’s only “so many” coins that will be minted. I understand that completely, because scarcity should be an attribute of money.
So lets chat about gold for a minute. If scarcity is an attribute, then gold’s got a lot of it. Jim Rickards was recently interviewed and he told the host that while visiting several of the most major gold refiners/minters, all of them told him that “there’s just no gold around.”
Well think about it for a minute. In Russia, the head of what you could call their central bank ( its really not) decided that a full 20% of Russia’s national wealth would indeed be held in gold. On that scale, we’re not talking about ounces, or even kilo’s. We’re talking tons. They’ve amassed many tons of the shiny stuff. Then there’s China, who continues to vacuum up every ounce/kilo/ton they can find.
Add in the smaller nations central banks that have been buying it and you start to think “hey, maybe we’re running out of the stuff.” But wait there’s more. Because of global events, new problems in the Mid East, and of course Covid, and you can add in the “retail” investor.
The retail guy is often thought of as a byproduct, and that he’s not a driving factor in the price of gold, but I beg to differ. Why? Because this isn’t an American thing, or a European thing, this is a global thing. With 8 billion people on this little blue orb, what happens if just 5% of them decide to buy one gold coin? That’s 400,000,000 coins. Four hundred million ounces. That’s 12.5 tonnes. And that’s just 5% buying ONE coin. My guess is that it’s more like 2%, but they buy multiple coins.
For instance, I realize that maybe only a few out of a hundred people might have any gold. But the one’s that do, generally have more than one ounce. Some have many ounces. I have readers that have told me they’ve bought 2 ounces every year since 2001 and continue to. I’ve had others tell me they sold their unused vehicle for12 grand and bought gold. On and on it goes.
So the bottom line is that we have demand for gold. Possibly at all time highs. Yet how is the supply holding up? NOT WELL.
The largest single source of gold in history has been the Witwatersrand Basin of South Africa. This geologic formation is believed to be the result of an ancient meteorite and has produced over 1.5 billion troy ounces of gold since it was discovered in 1886. Witwatersrand accounts for roughly 50 percent of the gold ever mined. The formation, however, has seen declining production since the 1970s. Recently, the total gold output of South Africa, almost all of which comes from Witwatersrand, has dropped below 170 tons per year.
Other major sources of gold include the extremely deep Mponeng mine in China, the Super Pit and Newmont Boddington mines in Australia, Indonesia’s Grasberg Mine, and the mines along the Carlin Unconformity in Nevada, USA. Canada, Russia, and Peru are also major producers of gold.
Between all of the gold sources in the world, current estimates suggest that roughly 2,500 to 3,000 tons of new gold is mined each year. At present, experts believe that the total amount of above ground gold in the world stands at just over 197,000 tons.
Though new gold veins are still being found, discoveries of large deposits are becoming increasingly rare. As a result, most gold production today is coming from older mines that have already been exploited for decades. In part, this is due to decreasing investment in discovery on the part of mining companies, though a larger factor is the fact that there may not be many large, undiscovered veins left in the world.
So where the heck does that leave us? Based on known reserves, estimates suggest that gold mining could reach the point of being economically unsustainable by 2050, though new vein discoveries will likely push that date back somewhat. New technologies may also make it possible to extract some known reserves that aren’t currently economical to access.
The bottom line here is that production isn’t keeping up with demand. Kilo bars are extremely hard to come by and the premiums are at record levels. The biggest and best mines and pits have already found the “mother load” years ago and are working the fringes. The supply, for lack of a better term, is failing to keep up.
One would think that if supply is down ( it is) and demand is high (it is) then the price would have to go higher, right? No. Because gold is based on paper contracts, not the metal itself. That’s the ONLY reason gold isn’t north of 3500 an ounce right now. But that said, they can only play that game for so long, and then something breaks. I don’t know the day, month or year, but that moment is coming.
Maybe it’s already here? Consider this: on the metals site Apmex, a one ounce American Gold Eagle is $2,116. Yet according to Kitco the price of “gold” is 1,898. That’s a $218.00 dollar premium. So, what’s the price of gold “really??” You’re not getting it for 1898 are you? Nope.
Obviously my point is and has been since 2001, that I still believe gold is a good investment, and I think we’re not long before we see gold permanently over 2,000 dollars, even in their criminal paper market. I’ve also been pushing silver since 2007, for a number of reasons, from the fact that it’s used in industry, medicine, etc, to the idea of it being the poor man’s gold.
Well, in percentage terms, silver’s premiums are worse than golds! For instance JM Bullion says it’s a low price leader for precious metals. Well, with silver at 28 bucks the lowest price on their site for a “random year silver eagle” is 37.07. But wait! They don’t have any. The only silver eagles that they can deliver are new 2021’s and they’re 42.07.
So lets do some math here. If silver is supposedly 28 and the going price is 42, isn’t that pretty much like 50% in premium? It is. Obviously the supply/demand situation in silver is just as big as gold. If you can find any silver rounds that are less than 5 bucks in premium, it isn’t a bad idea to grab them.
The metals are going higher folks, you have to have “some.” Even if they don’t go up from here, but just stay the same value for the next 10 years… you can’t say that about the dollar bills in your wallet. Think about it like that.