Has Global Gold Production Peaked?

January 18th, 2016 by

We often hear about “peak oil,” which is usually defined as the high-point in overall production of crude oil (on a global scale). Economists and other analysts have been attempting to predict when peak oil would hit for decades. Implied in this milestone is the idea that total production will be on a perpetual decline after this inflection point. If peak oil hasn’t already occurred, it’s certainly near. But what about peak gold production?

Calling the Top

open-pit-mining-195082_640One of the difficulties in accurately determining when gold (or oil, or any commodity, for that matter) has hit peak production lies in two unknown variables: 1) whether any significant new deposits remain to be discovered; and 2) whether yet unforeseen technological breakthroughs can dramatically increase our ability to access and extract the resource.

Moreover, gold is unique from other raw resources in that it generally never gets “used up.” Coal, oil, and even silver are destroyed when applied to their various industrial purposes. The vast majority of gold, on the other hand, is held and reused indefinitely.

Nonetheless, forecasters have also been trying to call the peak in gold mine output for years—and have at times seemed to be correct, only to have those expectations squashed.

Past Gold Production Peaks

For virtually the entire 20th century, South Africa was the world’s top gold producer. Its gold-rich Witwatersrand region yielded the greatest gold deposits the world has ever known.

Naturally, this made South African gold production the bellwether for the industry as a whole. As the chart below indicates, gold production in South Africa peaked in 1970.

South African gold production

Source: peakprosperity.com

Ever since this turning point, output from South African mines has steadily (at times, steeply) declined.

When global production is looked at in the aggregate, we can see four “peaks” in the past: 1912, 1940, 1970, and 2001. It seems that the annual output of gold peaks approximately once every 30 years before an unforeseen event or change (new technology, new discovery) helps it climb once again.

"World Gold Production 1900-2014" by Plazak, via Wikipedia

“World Gold Production 1900-2014” by Plazak, via Wikipedia

All Downhill from Here?

goldminerThe global mine production of the last two years perhaps seemed to indicate that another peak has been reached. Several prediction-makers joined Goldman Sachs in calling for “peak gold” either in 2014 or 2015. Indeed, it seems that 2015 will mark the 7th consecutive year of rising global output for the yellow metal.

Amid such low prices for gold, it would appear that very few new mining projects are being explored. Instead, miners are exhausting their existing resources by high-grading—going for the best grades of ore now and depleting the mine for the long-term.

According to the Financial Times, several executives at mining companies see falling production as the “new normal” for the industry, and are abandoning their past obsession with growing production with each successive year. Thomson Reuters GFMS expects global output to fall by 3% in 2016.

Reasons to Doubt Peak Gold Production

undersea gold depositHowever, it’s worth reiterating that declining mine output does not equal falling supply (as it does with other commodities). Even if mining output is on a perpetual decline, newly available sources of gold could rise if higher prices prompt more recycling of scrap gold. Each year, this is a significant source of new gold.

What’s more, mechanization of mining projects could allow for previously unreachable gold to be mined. It would also save costs (and liability) by not sending human beings into inhospitable mining spaces that are extremely hot, lack fresh air and light, and are generally dangerous. New technology also is allowing miners to recover gold from old tailings dams and other previously unfeasible sources, perhaps adding to the global gold supply for years to come.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.