Gold is the money of humanity. It is portable, divisible, a medium of exchange, and a constant unit of account. It is very strange to observe that people in the West believe that gold is nothing but a barbaric relic which was only used as money in the past. The public sees gold as a form of jewelry, something that can be easily converted to dollars. That has been true as of late as every corner has a “we buy gold” store. But is gold truly just a banking tradition, like Ben Bernanke thinks (see first minute of the video, a historic conversation between Ben Bernanke being challenged by Ron Paul)? It is only something you think about during weddings and anniversaries?
What makes gold so special? What makes it a precious metal?
Gold is extremely rare. All the gold mined in human history can fit into three Olympic-sized swimming pools. If those pools were filled with water the gold wouldn’t rust. Gold has no reaction with air, moisture, or most corrosive agents.
Gold’s history goes back to early human history. In 3,000 BC, the Egyptians were the first to melt gold. By 1,200 BC, they were wearing it as jewelry. The Libyans were the first to coin it though. In 564 BC, the Chinese were quick to follow along with the Greeks. However it was the Romans who used gold as a national currency system, something that helped the Roman empire thrive for five centuries. Unfortunately for the Romans, Rome started to strip their currency and devalue it as spending increased, which is one of the reasons why their grand empire ended in 476 AD. It was Rome that cleared the way for the future of gold as the one true money and individual currency itself. By the 19th century, all nations with the exception of China were on a gold standard.
Today not one country has a currency tied to gold. However, as we can see in Iran gold is still the ultimate money. Iran is currently working around sanctions by accepting gold for oil. Peakresources.org believes that as the fiat currencies get devalued to deal with the sovereign debt crisis gold demand will soar. The problem and opportunity we see is that the supply is already maxed out. So if a wave of demand comes we could see the gold price move rapidly on supply and demand fundamentals. The inflation will simply be the icing on the cake.
Gone are the days of easy discoveries like the one in 1799 in North Carolina where a twelve-year-old boy found a 17 pound gold nugget. According to statistics from Casey Research only one in 6300 gold projects go into production. Gold discoveries are declining, and projects feasible for production are very hard to find. As of 2012 roughly 60% of gold demand was met from mine production, the rest came from recycled gold. Think about this number: only 60% of demand is met with current production. This is a dramatic gap in supply-and-demand. Recycling gold has become an important part of the gold market. Since 2012 supply from recycled gold is up over ninety 93%. Without this gold, we would likely have a much higher gold price due to the lack of supply from mine production.
Two very important trends going forward
- Gold is becoming more expensive to discover. Liquid fuels are rising along with labor. Roughly $1.2 billion were spent on gold exploration in 1993. 20 years ago this resulted in 55 million ounces of primary gold discoveries. In 2003, $ 1.5 billion was spent in exploration with just over 25 million ounces of primary gold discoveries. However, in 2010 we saw over $5.7 billion spent but we only had about a total of 20 million ounces of gold discovered.
- Gold is becoming harder to find. Poor grades are declining, and high-grade deposits are extremely rare now. According to the USGS poor grades have fallen 38% since 1997 for underground gold deposits and 35% for open pit mines.
The fundamentals for gold as an investment had never been better. Currently gold is not tied to any currency. It is being held as real money or fiat insurance by the global elites as the debt crisis rises and the fiat currencies circle down the drain of devaluation the demand for gold will
soar but not just because of the inflation that is coming, but because we have peaked in gold discoveries and gold production. The restoration of gold as recognizable money and a safe haven will open up the floodgates of new investors. But it will not help us increase the gold supply. We all know how this ends: gold is going a lot higher and should be one of the best investments one can make during the next 5 to 15 years.
Go to peakresources.org for more info.