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What Does "Peak Gold" Mean?

What Does “Peak Gold” Mean?

John-Rothans

Written by Philip Diehl

Jun 10, 2022

You may have heard the term “peak gold” and wondered what it meant. Simply put, peak gold is the maximum rate of global gold extraction, after which mining will slowly decline until gold can no longer be extracted at a profit.

For a more complete understanding of peak gold, we examine the concept’s importance to the precious metals industry, signs of a potential peak gold scenario, and analysts’ predictions regarding peak gold.

Why Peak Gold Matters

For those looking to buy gold, a discussion of peak gold is part of a larger issue of supply and demand trends. Because global gold production directly impacts the price of gold, understanding when gold production may increase or decrease could help potential buyers make more educated decisions on when to add the precious metal to their portfolios.

Peak Gold History and the Debate Over Peak Gold

Looking back over the last century or so: In 1912, 1940, and 1970, global gold production experienced peaks, followed by several years of decline. According to The Perth Mint, we experienced another peak in 2018 when production reached 3,554 metric tons. After each of these peaks and subsequent declines, production ultimately increased, showing an overall upward trend of gold extraction over the 20th and 21st centuries.

However, extraction is just one of multiple factors involved in gold production. Others include:

  • Availability of mineable gold
  • Cost of gold extraction
  • Discovery and exploration
  • Rate of production

This intricacy is why discussions of peak gold are far more complicated than simply asking, “When will gold run out?” It’s also why the question of when peak gold may occur is widely debated. Some argue that we are already at peak gold, while others argue that we are nearing peak gold or that peak gold is so far away the concept is not currently worth consideration.

Among the many challenges gold mining companies face is the increasing cost of gold mining, which may hamper future production. The “easy, cheap gold” was out of the ground long ago. Only 20 years ago, the cost of mining an ounce of gold was less than $200. Today, it’s more than $700 and rising rapidly. The cost of mining determines which gold is considered “extractable”—so even if a new deposit is discovered, the location, geopolitical risk, and overall difficulty of mining may make the gold too costly to mine, which in turn may drive down overall gold production, despite the rate of discovery.

Another factor to consider is that production has not been keeping up with overall demand. Mining companies have been reducing their exploration budgets by more than 60% since 2012. As gold valuation increases, some gold miners may be convinced to resume exploration—but since the average amount of time between discovery and putting gold in the market is 19.5 years, a renewed interest in discovery will likely not impact the market for some time. And even with a renewed interest in discovery, there continues to be uncertainty around resource availability. We still don’t know exactly how much gold is still in the world.

Wherever you stand on the issue of peak gold, it may be helpful to understand and consider the possible signs of an impending peak in gold production.

What Are the Potential Signs of Peak Gold?

Discovery Continues to Decrease.

Over the past three decades, we’ve seen a decline in the discovery of large deposits of gold. This doesn’t necessarily mean that the world is about to run out of gold, though. Some of this decline is because, as discussed above, the cost of gold production has shifted the priorities of gold miners away from discovery.

Cost of Production Continues to Increase.

Several factors determine the cost of gold production—density of the deposit, location and depth of discovery, geopolitics, and any risks involved with working in the country where any gold is discovered. As gold discovery has moved away from the United States, the cost of production has risen. When production cost is high, production is no longer financially viable for some mines.

Production Outpaces Demand.

If peak gold is the maximum rate of gold production, one indication of peak gold could be production outpacing gold demand.

Are We Seeing Signs of Peak Gold Production Today?

It’s hard to imagine a world in which the rate of gold production outpaces the demand for gold. However, there may be signs that peak gold production could occur in the years ahead.

One possible sign is that gold is getting harder to find and more expensive to mine. It’s also coming increasingly from countries that are less stable or are more adversarial to the United States. This requires miners to increase their risk premiums to cover the uncertainty of their business operations.

Twenty-five years ago, more than half of all gold mined in the world came from the United States or nations friendly with the United States—South Africa, Australia, and Canada. In fact, South Africa and the United States were the largest producers of newly mined gold. Today, less than a quarter of world production comes from these four countries. China and Russia are the top two producers today.

Peak gold production is determined by a combination of availability (amount of gold discovered) and extractability (the amount of discovered gold that’s worth producing). There may be deposits such as the Witwatersrand Basin mine in South Africa, the largest deposit to date, yet to be found in other countries. But if the cost of production remains high, the amount of gold we can produce will still be limited.

Regardless of whether we’re reaching peak gold or are just repeating a trend, gold prices are broadly expected to rise for years to come.

If you think the time is right to add gold to your portfolio or wish to learn more about the benefits of physical gold ownership, you can begin by requesting our free information kit on purchasing precious metals.

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