Gold’s extreme rarity is one of the major factors contributing to its high value and status as a “precious” metal. But just how rare and scarce is it at this point?
According to report by Goldman Sachs on commodity scarcity, the world could run out of mineable gold in 20 years.
“The combination of very low concentrations of metals in the Earth’s crust, and very few high-quality deposits, means some things are truly scarce,” Eugene King, European metals and mining analyst at Goldman Sachs, said in a note. “Their relative scarcity, and the market’s belief that new discoveries will be limited, is what drives the price of these super rare commodities.”
The report used the chart below to show that “there are only 20 years of known mineable reserves of gold and diamonds”:
Of course, new discoveries of gold deposits can be made, but lately they have proven hard to come by. The chart below shows the steep decline in discoveries since 2008 (also note how few discoveries were made in 2010-2013):
Gold exploration and discovery projects are expensive and involve a high risk that little or nothing will be found. They’re especially difficult to carry out now with gold at relatively low prices.
The belief that miners have reached “peak gold” is not new. Chuck Jeannes, CEO of Goldcorp, told the Wall Street Journal in September: “Whether it is this year or next year, I don’t think we will ever see the gold production reach these levels again. There are just not that many new mines being found and developed.” To demonstrate this point, Goldcorp showed the following chart in its October 2014 Corporate Update presentation:
So what could this mean for gold? A constrained supply, as well as the fact that gold is currently selling for just above the cost to produce it, should help gold prices rise. At the very least it should limit the downside, which at this point seems far less than the upside.
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