The Peak Gold Problem Is Very Real
The comments below are an edited and abridged synopsis of an article by Adam Tumerkan
The soaring US dollar and tightening central banks worldwide aren’t great for gold. But a lower gold price allows investors to average down, and most investors don’t realize 2 important things.
First: Just because the crowd isn’t investing in something today doesn’t mean that they won’t rush in tomorrow. Before every bull market, there is a bear market. For prices to climb, they must already be down.
Second: Most investors invest for the immediate future, not the long term.
There are a couple of reasons why gold looks good going forward regardless of the weak short term, but simply put, we’ve reached peak gold.
At $1,300 per ounce or lower, all the gold has been found. There are no more mines at these prices.
Mining companies are self-cannibalizing industries. Each ounce that’s mined today is one less ounce for tomorrow. Therefore, they must always be looking for new sources of gold.
The major mining companies—Barrick Gold, Newmont, Goldcorp—are shrinking fast. This is an important sign that gold production will decline, because when the peak’s reached, the only way to go is down. The last few years of sub-$1,300 gold has wrecked the sector.
Analysts know that prices will rise eventually. But they would rather start buying after prices have risen than before, because their careers depend on it.
Bottom line: We’re in the early stages of a supply-driven bull market.