The Daily Market Report: Gold May Be Nearing “Peak Production”

31-Mar (USAGOLD) — Gold extended modestly lower in overseas trading today, before rebounding back to steady on the day. The rebound in the dollar to a six-session high is conspiring to keep the yellow metal in check.

Near-term focus remains on Fed rate hike expectations. Chairwoman Yellen adopted a somewhat more hawkish tone on Friday, saying a rate hike “may well be warranted later this year.” That was widely perceived to be a walking-back some of her post-FOMC meeting dovishness.

Of course, everything remains data dependent. Unless there is a significant upswing in economic momentum, it still strikes me as unlikely that rate lift-off can reasonably be justified. The Fed does not have a particularly impressive forecasting record, but even so, their own projections remain less than optimistic.

In a research report released last week, Goldman Sachs European metals and mining analyst Eugene King warned that the world only has about 20-years worth of minable gold reserves remaining. This story has gotten quite a bit of play over the last couple of days, but talk of “peak gold” is nothing new. See the ZeroHedge story from Friday.

That little sliver of a blue bar at the far left is Goldman’s representation of total gold reserves. It ain’t much…

Peak gold production typically occurs ~20-years after peak discovery, according to a presentation from late last year by Goldcorp. The latter threshold was hit in 1995 according to Goldcorp, suggesting that peak production may occur sometime around this year.

While global mining output continues to climb, be aware that none of the output from China — the world’s largest producer — is making it to the open market. That may be true to some degree for Russia as well.

The above chart from Wikipedia tells a compelling story about gold production: What happened to top producer South Africa in 1970 may be about to happen to the world as a whole. If Goldman’s and Goldcorps expectations are even modestly close to being accurate, diminishing supply in the years ahead should be broadly supportive to the price of gold.

Cross reference this supply information with the recent report from ANZ Bank, where gold demand in Asia alone is expected to double over the next 15-years, and you have a recipe for potentially explosive price action. Substantial growth of the middles classes in China, India, Indonesia, Japan, South Korea, Malaysia, Philippines, Singapore, Thailand and Vietnam is expected to drive gold demand for the region from 2,500 tonnes to 5,000 tonnes by 2030. ANZ sees scope for new record high prices.