by Peter Schiff, Schiff Gold:
World gold production dropped by 5.4% in 2020 according to preliminary estimates released by GlobalData last week.
Global data projects gold production came in at 108 million ounces last year. The sharp decline was largely due to mine closures during the coronavirus pandemic. But it also fits into a broader trend of declining mine output we’ve seen over the last several years.
Coronavirus forced many mines to shut down completely for periods of time last year, particularly during the second quarter. According to a report from Kitco News, Q2 2020 charted the lowest gold mine quarterly output in six years.
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GlobalData noted several other factors that directly impacted gold mine output in 2020, including the transition of the massive Indonesian Grasberg open-pit mine to underground mining, tightening environmental policies in China, and the placement of the large Peruvian Lagunas Norte mine under care and maintenance.
According to GlobalData, China will record the largest decline in gold mine output in 2020, with production falling 934,000 ounces year-on-year. China has led the world in gold production over the last several years, but its mine output has dropped four straight years. Chinese gold production fell 6% y-o-y in 2019.
The impact of the COVID-19 pandemic on gold mining makes it difficult to determine how 2020 fits into the general trend in gold production. After flat-lining for several years, gold mine output fell by 1% in 2019. Although 2019 marked the first absolute decline in gold production since 2008, it continued a general trend of falling mine output. Gold mine production was up a modest 77.72 tons between 2015 and 2016, 33.92 tons between 2016 and 2017, and just 28 tons between 2017 and 2018.
Historically, mine production has generally increased every year since the 1970s. There was a drop in production in 2008, but that was something of an anomaly, as it occurred at the onset of the 2008 financial crisis. The recent slowdown in mine production is more concerning. In fact, some have speculated we may be at or near “peak gold.”
Peak gold is the point where the amount of gold mined out of the earth will begin to shrink every year. Some prominent players in the mining industry think we’re close to that point.
Over the last couple of years, several gold-mining executives have warned we have found most of the world’s minable gold. For instance, in 2019, Goldcorp chairman Ian Telfer said, “We’re right at peak gold here.” And during the Denver Gold Forum in September 2017, World Gold Council chairman Randall Oliphant said he thought the world may have already reached that point. Franco-Nevada chairman Pierre Lassonde has also indicated he expects a significant dip in gold production in the coming years. And in the spring of 2019, a report in Deutsche Welle made the case that we’re approaching peak gold.
The pandemic notwithstanding, the biggest problem facing miners is that the easy to mine gold has mostly been dug out of the earth. We’ve had a three-decade decline in the discovery of new gold deposits despite increases in exploration funding. CFRA Research analyst Matthew Miller told Deutsche Welle that gold miners are struggling to grow reserves in line with production.
The largest and most prolific reserves have already been found.”
Even with gold prices rising, mining companies are having a difficult time coving the higher cost of mining the harder to reach, lower-quality deposits of gold left in the earth.
Investors should never lose sight of the most basic fundamentals – supply and demand. The gold industry may well be entering a long-term — and possibly irreversible — period of less available gold. As mining companies find it more difficult to pull gold out of the earth, it will mean less gold for refiners to produce for the consumer market. Remember, gold gets its value from its scarcity.