As much as I like the folks at the USGS, I will point out one glaring discrepancy in their data as a means of exposing why I think these reserves, like those for many other critical things like oil, are probably overstated.
And that story begins with South Africa (highlighted in the table above with the blue dotted line.)
There you'll note that, at 6,000 tonnes, South Africa has the second largest stated country reserves. However, according to official South African data, they claim to have an astonishing 36,000 tonnes of reserves. Which is right?
Neither as it turns out.
First, the true story of South African gold production is completely obvious from the production data. It's a story of being well and truly past the peak of production:
And not just a little bit past peak, but 44 years past; down a bit more than 80% from the peak in 1970. The above chart is simply not even slightly in alignment with the claims of the South African government to have 36,000 tonnes of reserves.
But pity the poor South African government which knows that gold exports represent fully one third of all their exports. Of course they will want to claim massive reserves that will support many future years of robust exports.
Instead, the South African production data can be modeled by the same methods as any other depleting resource and one such analysis has been done and arrived at the conclusion that there are around 2,900 tonnes left to be mined in South Africa.
The analysis is quite sound; and the authors went on to point out that the social, economic, energy, and environmental costs of extracting those last 2,900 tonnes are quite probably higher than the current market value of those same tonnes.
If they are extracted, South Africa will be net poorer for those efforts. This is the same losing proposition as if it took more than one barrel of oil to get a barrel of oil out of the ground - the activity is a loss and should not be undertaken.
For lots of political and economic reasons, however, gold mining will continue in South Africa. But, realistically, someone in government there should be thinking this through quite carefully.
The larger story wrapped into the South African example is this: perhaps there are 19 years of global gold reserves left (at current rates of production), but I doubt it.
Instead, the story of future gold production will be one of declining production at ever higher extraction costs -- exacerbated by the 80,000,000 new people who swell the planet's population every twelve months, the hundreds of millions of people in the East who enter the ranks of the middle class annually, and trillions of new monetary claims that are forced into the system each year.
And this brings me to my final point of this part of the public part of this report.
If we cast our minds forward ten years and think about a world with oil costing 2x to maybe 4x more than today, we have to ask ourselves some important questions:
How many of our currently-operating gold and silver mines, or the base metal mines from which gold and silver are by-products, will still be in operation then?
How many will simply shut down because their energy costs will have exceeded their marginal economic benefits?
After just 100 years of modern, machine-powered mining, all of the great ore bodies are gone, most of the good ones are already in operation, and only the poorest ones are left.
By the time you are reading stories like this next one, you should be thinking, Why are we going to all that trouble unless that's the best option left?
South African Miners Dig Deeper to Extend Gold Veins' Life Spans
Feb 17, 2011
JOHANNESBURG—With few new gold strikes around the world that can be turned into profitable mines, South Africa's gold miners are planning to dig deeper than ever before to get access to rich veins.
The plans raise questions about how to safely and profitably mine several miles below the surface. Success would mean overcoming problems such as possible rock falls, flooding and ventilation challenges and designing technology to overcome the threats.
Mark Cutifani, chief executive officer of AngloGold Ashanti Ltd., has a picture in his office of himself at one of the deepest points in Africa, roughly 4,000 meters, or 13,200 feet, down in the company's Mponeng mine south of Johannesburg. Mr. Cutifani sees no reason why Mponeng, already the deepest mining complex in the world, shouldn't in time operate an additional 3,000-plus feet deeper.
"The most critical challenges for all of us in South Africa are depths and depletion of reserves," Mr. Cutifani said in an interview.
The above article is just a different version of the story that led to the Deepwater Horizon incident. Greater risks and engineering challenges are being met by hardworking people going to ever greater lengths to overcome the lack of high quality reserves to go after.
By the time efforts this exceptional are being expended to scrape a little deeper, after ever smaller and more dilute deposits, it tells the alert observer everything they need to know about where we are in the depletion cycle, which is, we are closer to the end than the beginning.
Perhaps there are a few decades left, but we're not far off from the day where it will take far more energy to get new metals out of the ground compared to scavenging those already above ground in refined form.
At that point we won't be getting any more of them out of the ground, and we'll have to figure out how to divvy up the ones we have on the surface. This is such a new concept for humanity -- the idea of actual physical limits -- that only very few have incorporated this thinking into their actions.
Most still trade and invest as is the future will always be larger and more plentiful, but the data no longer supports that view.
We are at a point in history where we can easily look forward and make the case for declining per-capita production of numerous important elements just on the basis of constantly falling ore grades. Gold and silver fit into that category rather handily.
Depletion of reserves is a very real dynamic. It is not one that future generations will have to worry about; it is one with which people alive today will have to come to terms.
The issue of Peak Cheap Oil only exacerbates the reserve depletion dynamic by adding steadily rising energy input costs to mix. Should oil get to the point of actual scarcity, where we have to ration by something other than price, then we must ask where operating marginal mines slot onto the priority list. Not very highly, would be my guess.
Part 3: Protecting Your Wealth With Gold
For all the reasons above, it's only prudent to consider gold an essential element of a sound investment portfolio.
In Part 3: Using Gold to Protect Yourself In Advance of the Greatest Wealth Transfer of Our Lifetime we detail out the specifics of how much of your net worth to consider investing in gold, in what forms to hold it, which price targets are gold and silver most likely to reach, and which eventual indicators (likely years away) to look for that will signal that it's time to sell out of your precious metal investments.
The battle to keep gold's price in check is truly one for the ages. Not because gold deserves such treatment, but because the alternative is for the world's central planners to admit that they've poorly managed an ill-designed monetary system of their own creation. As a result, price manipulation is an additional important factor to be aware of, and to address in your accumulation strategy.
Make sure you're taking steps today to ensure that the purchasing power of your wealth is protected, if not enhanced, when the trends identified above arrive in full force.
The case for gold's manipulated price, and how that can be used to work to your advantage
Calculating the "floor" beneath which gold will likely not fall
The coming Great Wealth Transfer, which almost certainly will occur in our lifetime
How much to invest in gold
How to invest in gold
Exit strategies: when will it make sense to sell your holdings? And what should you exchange them for?
Before we can address the idea of storing some of your wealth in gold (and/or silver) we have to visit the topic of market manipulation. As many of you are aware this is an area of exceptional controversy, although I am not entirely sure why given the distressing laundry list of recently proven, and often grotesquely brazen, market manipulations performed by big banks in many other market areas.
Big banks have been proven or alleged to have manipulated energy markets, LIBOR, currency markets, the global oil market, and aluminum, among other things and all of these transgressions happened after they got caught engaging in forgery and fraud during the mortgage swindles of 2005 to 2007.
On one side of the manipulation debate, we might place the Gold Anti-Trust Action (GATA) organization alleging constant official manipulation to suppress the price of both gold and silver, and on the other we might place Jeff Christian, managing director of the metals research firm CPM, whose position is that all price movements can be explained by ordinary market forces.
I happen to be somewhere in between those views as I think both legitimate and illegitimate forces are part of the landscape. But I am heavily tilted towards market manipulation as the explanation for why gold (and silver) tend to move downwards violently from time to time and why the prices for each are not higher than they currently are.
The SEC has a clear definition of market manipulation and I’ve reproduced it here but swapped out the words ‘security’ and ‘stock’ with ‘gold’ to make it that much clearer:
Manipulation is intentional conduct designed to deceive investors by controlling or artificially affecting the market for gold. Manipulation can involve a number of techniques to affect the supply of, or demand for, gold.
They include: spreading false or misleading information about gold; improperly limiting [or expanding] the supply of gold; or rigging quotes, prices or trades to create a false or deceptive picture of the demand for gold. Those who engage in manipulation are subject to various civil and criminal sanctions.
I also added the two words "or expanding" because that condition also applies to commodities.
How likely is it that some firms have been trading in gold in such a way as to create a false, rigged, or deceptive picture of gold (and silver) prices? It’s all but proven in a court of law, but don't hold your breath waiting for that final proof, as the US court system has vigorously defended banks from such lawsuits for decades.
I also happen to believe that gold is officially suppressed in price because it's what I would do if I were at the helm of the Fed and cared only for bolstering confidence in the dollar specifically, and fiat currencies generally, making the stock market a more attractive alternative, and also lending credence to political and monetary decisions (for the record, I am merely placing myself in the mind of the enemy here).
Given that set of mandates, I would order up some hefty gold suppression because gold has a very bad habit of casting a bright light on rotten monetary and fiscal policy.
Suppressing the price of gold just makes so much sense that I would consider it a form of derelict strategic weakness if the Fed et al. were not doing it.
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