According to a recent article in Money Week, based on the SNL Metals & Mining report, of all the gold ever mined approximately only 167,000 tonnes is still in existence today. Gold is frequently traded in it’s paper form, through ETF’s, spread betting and futures. But physical gold is often kept and stored for long periods of time, with only relatively small amounts consumed through manufacturing. As you know we are great advocates of gold as a long-term store of wealth, hedge against inflation and a sign of wealth – and we know global demand is increasing.

Discoveries are Harder to come by

In the recent SNL Metals & Mining report, some key figures stood out that may point to the conclusion – we have hit ‘peak’ gold. In the last 24 years, 1.84 billion ounces of gold has been produced (mined from the ground), which may sound like a huge amount. However if you compare this to the amount of new gold deposits that have been discovered over the same time period (only 1.66 billion ounces from 217 deposits), an obvious deficit starts to emerge. The known quantity of gold in the ground has fallen from 1.1 billion ounces from 124 deposits in the 1990s, to just 674 million ounces from 93 deposits since 2000.

The other issue, making that deficit even larger, is the amount of gold discovered that will actually be mined. Many discoveries will never be mined as they are deemed uneconomical. Political and environmental concerns can also hinder production.

Time to Production is Increasing

Another concern is the time it takes from discovery to production. From 1985 to 1995, the average time from discovery to production was 8 years. In 1996 to 2005, that average increased to 11 years. From 2006 to 2013, the average new mine took 18 years. Currently there are 63 projects scheduled to begin between 2014 and 2019, and on average these are expected to have taken 19.5 years from discovery to the first production of any gold. SNL forecasts this lead time is going to continue to increase, and could reach 30 years for discoveries in 2018 and 2019.

Conclusions

We’ve always known that gold was in limited supply, but maybe didn’t realise the true extent of the situation. As gold is used as a long-term store of wealth, many investors will store gold away for many, many years. Chinese and particularly Indian investors may never sell their gold – it is a status symbol, it shows prosperity and success. They will keep the gold in their families for generation and it will almost never come back onto the market. Despite the volatility in prices over recent years, gold is generally less volatile than other precious metals and should provide diversification and a security during times of financial crisis. The potential scaremongering of a drop in supply won’t suddenly send gold prices rising, but this may be a good indication of what the future holds for the gold market.