Have we just hit ‘peak gold’? I’m betting we have

In 2013, more gold was produced than ever before in a calendar year. Some 3,018 tonnes – over 100 million ounces – was pulled out of the ground.

That record was reached despite the falling gold price. And I think it’s a record that will stand for many years to come.

It may be that we just hit ‘peak gold.’

Here’s why.

Gold discoveries are drying up rapidly

I am all too aware of the across-the-board failure of gold explorers to find new deposits, and of development companies to turn discoveries into mines.

But after spending last night poring over a recent report from SNL Metals and Mining Research, I have to say that seeing the actual data put so starkly was quite an eye opener.

Let’s start with some stats.

In the last 24 years, some 1.84 billion ounces of gold have been produced. Over the same period, only 1.66 billion ounces have been discovered. So there’s already a deficit – production is growing more rapidly than new gold is being discovered – and it’s only going to get bigger.

There have been 217 major gold discoveries (‘major’ is defined as two million ounces or more) over the same period. But the number of discoveries has been trending sharply lower.

In the 1990s, some 1.1 billion ounces were found in 124 deposits (and remember, the 1990s was largely a bear market for mining). Since 2000, despite the torrent of money thrown at exploration, only 674 million ounces have been found in 93 deposits.

What’s more, grade (the amount of gold in the rock) has also been declining.

Of course, on top of this, not every ounce of gold that is discovered gets mined. Some mines are deemed uneconomic and are never built. Many ounces get lost in the production process.

SNL generously assumes a 75% rate for converting resources to economic reserves (ie mine-able rock) and then a 90% recovery rate for ore processing. Even on those figures, the gold discovered since 2000 will replace only 50% of the gold that has actually been mined over the same period.

SNL adds, rather ominously: “Considering that only a third of the discovered gold has been upgraded to reserves or has already been produced, and that many of these deposits face significant political, environmental or economic hurdles, the amount of gold becoming available for production in the near term is certainly much less”.

In the chart below we see the gold price (in green) and world mine production (in brown). But the key things to note are those copper-coloured bars. They show newly discovered gold.

Gold discovery and production, and gold price

As you can see, discoveries are not being made. Since 2012, exploration budgets have been slashed, sure. But even in the big spending years of 2010 and 2011 very little was found.

It’s taking much longer to get gold out of the ground

Gold is not a commodity that gets consumed. Unlike copper or oil or wheat, which get used, gold’s purpose is to store and display wealth – so, in one form or other, it is hoarded. Almost all the gold ever mined – estimated at just over 167,000 tonnes – still exists.

As a result, the pending dearth of fresh gold supply may not affect the gold price in the way that a sudden collapse in the supply of oil would affect the oil price. But, even so, the coming fall in supply points to higher prices in the years ahead. (If you want some ideas on how to invest in gold, check out our Metals and Miners newsletter.)

The gold that is being hoarded could all, in theory, return to market – although it might take higher prices to lure it there. Nobody’s interested in gold at the moment, except a few diehards like yours truly. But if people get interested again (another financial crisis would do the trick) and that interest comes just as new mine supply dries up, gold really will be precious and you really will be looking at higher prices.

And it’s not just lack of new discoveries that’s the problem. It’s the time it takes to get a new discovery into production. That is increasing significantly.

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Between 1985 and 1995, the average was about eight years, says SNL. Between 1996 and 2005, the time increased to 11 years.  And from 2006 to 2013 the average time from discovery to production has increased to 18 years.

That’s over half a generation! A mighty long time to wait for a return on your investment.

It gets worse. SNL says the 63 gold-mining projects scheduled to begin production between now and 2019 will take an average of 19.5 years from discovery to production.

Below you can see all of this in chart form. You can see that projections for 2018 and 2019 are as high as 30 years!

Gold - time from discovery to production

A whole host of factors have caused the need for this extra time between discovery and production. In the words of SNL, problems include “the need for increased and more detailed feasibility work, hurdles imposed by greater social and environmental awareness, longer and more demanding permitting processes, increased need for infrastructure and processing capacity due to lower ore grades and/or more remote locations, limited availability of capital, and scarcity of experienced personnel”.

All in all, this points to dramatically falling gold production in the years ahead. If you don’t need to sell, keep your gold – you might find in a few years it’ll be worth a few bob.

You might also find that the value of genuinely mine-able deposits also goes up.

Just before I go, I want to finish with a chart from Nick Laird at Sharelynx which shows annual gold production since, yes, 1835. Heaven knows where he gets the data. You can see the huge spike in 2013 to 3,018 tonnes:

Global gold production since 1835

Did we just hit peak gold?

A £10 bet with the first person to post in the comments below says we did.

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  • Oscar Foxtrot

    I suspect you might be right Dominic!

  • Borderer

    Dominic may have spent last night “last night poring over a recent report from SNL Metals and Mining Research”, but I managed to find this article in about 15 seconds.


    Dominic’s post post looks remarkably similar, but does add some completely unsupported conclusions.

    The price of gold shown is not adjusted for inflation.

    It demonstrates no correlation whatsoever between price, discovery, production and/or time from discovery to production.

    No commentary on geopolitical factors affecting discovery/production.

    All in all, nothing compelling here at all.

    Dominic, I’m afraid you need to up your game.

  • Jerry C

    If you are correct I am sure you will tell everyone about your article. If how ever you are wrong, will you refer to Kevin Miurphy’s aticle and blame him? Shame on you for copying someome else’s homework. You have lot’s of Brownie points for this faux pas.

  • Borderer

    @Jerry C – the point is, Kevin Murphy drew no conclusions in his article.

    Dominic, on the other hand, needs the big headline “have we reached peak gold?”, then promptly fails to demonstrate anything of the kind.

    Like you, I object to paying a subscription in order to read plagiarizm.

    Perhaps the editors of Money week ought to stand up and be counted?

  • Steve Ives

    Why the discrepancy between the 100 million ounces of production for 2013 mentioned in the first paragraph, and the 80 million ounces shown in the first SNL chart? They can’t both be right.

    • Borderer

      “Over 100 million ounces” is definitely wrong for starters. Assuming (and that’s a big ask) that Dominic’s figure of 3018 metric tonnes is correct, this is 3018 x 32150. 7466 = just over 97million troy ounces. Still doesn’t explain the discrepancy though. Maybe troy ounces and avoirdupois mix up mix up?

  • Boris MacDonut

    Gold is down 5% in a year and 32% in 3 years. So they need to curtail supply a bit.

  • Dominic Frisby (the author)


    Kevin Murphy is the analyst at SNL. The article you are referring to is a summary of the key findings of his own research report, the same report which I reference in the article above. SNL put out those research reports in the hope that writers like me pick up on them, use the research and bring it to a wider audience. Plagiarism is passing someone else’s work off as your own. I believe I gave due credit to SNL all the way along , as I always try to do when I make use of the charts and research of others.

    I don’t think the guy who is making these accusations has noted who the author of the mining.com article is.

    • Borderer

      Double sigh

      Kevin Murphy is indeed an analyst at SNL. But his article was published in Mining.com.

      Dominic, your article was prefaced by the statement “after spending last night poring over a recent report from SNL Metals and Mining Research” which leads readers to suppose that it was a digest and commentary on that report.

      What followed was a copy of an article by someone who happens to be an analyst at SNL, appearing in some other website, to which that analyst contributed.

      It is the equivalent of copying an article by Robert Preston in the Daily Telegraph and quoting the source as the BBC.

      Let any Moneyweek reader read your article and Mr Murphy’s and make up their own mind.

  • Dominic Frisby (the author)

    It’s Peston.

    • Anthony Reid

      So it can’t be plagiarism, right?