Gold Supplies Drying Up

Written by Jason Simpkins
Posted March 15, 2018 at 8:00PM

China is the world’s biggest gold producer, accounting for 15% of global output.

And in 2017, its production tumbled 9% — a record drop.

This is not a typical occurrence.

In fact, it’s only the second time since 1980 (37 years) that China’s gold output has fallen. But since 2016, authorities in Beijing have increased their scrutiny of gold mining. That’s led to broad closure of smaller mines in the country.

Indeed, China aims to consolidate and upgrade the industry by cutting the number of gold miners to around 450 from more than 600, and shutting down 40 metric tons of outdated production capacity by the end of 2020.

This consolidation is an ongoing process that will shrink supplies at a time when demand is rising. That will exacerbate an already-lopsided imbalance, as Chinese demand for gold is already twice the level of production.

China produced an estimated 420.5 metric tons of gold last year, according to the World Gold Council. Yet, over the same period, Chinese demand for gold rose by 4% to 953.3 metric tons.

Now, before you start thinking this is all about China, it’s not.

As I said, China is the world’s top gold producer, which makes it especially important. But other major producers are cutting back too.

Before China took the top spot, South Africa was the world’s most prolific gold-mining country.

In the 1880s, the discovery of gold in South Africa’s Witwatersrand Basin (Responsible for more than 40% of all gold ever mined in human history!) transformed Johannesburg into one of the world’s largest and most populous cities.

To this day, South Africa’s economy is the most advanced and stable in sub-Saharan Africa, all thanks to gold.

But now, it’s running out and miners are fleeing. The country produced just 167.1 metric tons in 2016, an 83% plunge from the 1970 peak of more than 1,000 metric tons.

Australia, another long-time gold baron, is poised to see a similarly-devastating drop in gold production in the decades to come.

In just 40 years, all but four of the 71 currently operating mines in the country will be exhausted. And most of these will close in just the next couple of decades.

The end result: Australia's gold production will be cut in half, falling from 9.7 million ounces last year to 4.7 million ounces in 2057.

Coincidentally, revenues will fall from $15.8 billion to $7.3 billion, the number of active mines will decline from 71 to 47, and the number of workers directly employed will drop from 28,000 to 7,300.

All of this, of course, is part of the ‘Peak Gold’ phenomenon — something we’ve talked about many times before. Simply put, gold is a finite resource, and there’s only so much left to mine.

Or as Australia’s Association of Mining and Exploration Companies Chief Executive, Warren Pearce, put it:

"Discoveries these days are becoming more and more difficult, and the next major resource finds are going to be at greater depth. We're looking at a situation over a 40-year outlook that says our production is going to halve unless we're able to either increase our rate of discovery by 200% or increase our productivity by 200%.”

Basically, Pearce is saying the Australian gold mining sector is sunk unless it's able to drill deep enough into the earth to double the current rate of discovery and production.

That is what we call a “pipe dream.”

In all, gold mining output is projected to fall by roughly a third over the next decade. And from there it’ll continue to fall at an accelerating pace, as the world’s deepest, richest gold mines exhaust themselves.

That’s why this discovery is so important.

It’s an upstart gold mine that could be the single-biggest gold mine in America.

Officially, there are 6 million ounces of gold there now, but there could ultimately be as much as three times that.

Furthermore, the gold is cheaper to mine than almost any other deposit in America. It’s of an exceptionally high grade. And it’s incredibly easy and environmentally friendly to extract.

Again, this is crucial because America is not exempt from peak gold. U.S. production has tumbled by about 10 million metric tons in the past decade. And there have been no major discoveries to speak of.

The world is running out of gold. I don’t know how to say it any more clearly.

So check out Nick Hodge’s latest report on the biggest gold find in America in recent history. There won’t be many more like it.

Fight on,

Jason Simpkins Signature

Jason Simpkins

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Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of The Wealth Warrior, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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