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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
 Posted - 09/15/2007 : 17:34:42
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Peak Gold!
Excerpts posted, click on the above link to get the whole story:
In a previous article Gold Vanishing Into Private Hoards I have examined the future of gold from the demand side. Now in Peak Gold! I examine it from the supply side.
....In this new series of articles I wish to provide a definitive answer to Tom Szabo’s question: yes, we are approaching ’Peak Gold’ if we have not already passed it.
....The last twenty-five years in the history of gold mining has been a gross aberration during which gold was mined as if it were a base metal, namely, at the top grade of ore reserves (that is, most recklessly). This is in the sharpest contrast with how gold has been mined traditionally as dictated by the economics of gold mining, namely, at the marginal grade of ore reserves (that is, most conservatively). The world is witnessing a sea change: gold, having been mined qua a base metal, is once more being mined qua a monetary metal.
...Gold mining used to be the very opposite of base metal mining which must, of necessity, maximize profits, just like any other enterprise. Not many people realize that gold mining is the only exception to this rule. The goal of the gold miner is not to maximize profits. Far from it.
His goal is to maximize the life of the gold property....
Worst grade first, top grade last
Historically, the propensity of governments is to debase the currency rather than maintaining its value. The longer gold stays underground locked up in the gold-bearing ore, the longer it stays outside of the government’s reach. We must remember that gold in the ground can still be an efficient store of value.
.....All mines will realize that premature exhaustion of their gold property is suicidal. They will have to learn again the wisdom of gold miners of old:
worst grade first, best grade last.
Ben Franklin’s dictum that „experience runs an expensive school, but fools will learn in no other” applies here as well and, therefore, the learning process may take some time.
Be that as it may, the smartest gold miner has probably shifted back to mining at the marginal grade already. He reasons as follows: „If I can only keep my mine operational long enough, dollar debasement will catch up with my submarginal grades and will make them go through a metamorphosis. My submarginal grades of ore will become payable. My expiring gold mine will be rejuvenated and given a new lease on life, thanks to the misguided monetary policies of spendthrift governments. Ergo I had better work my mine as conservatively as possible and lengthen its working life by all available means”....
Barrick...is now saying that the price of gold will rise during the next five to seven years because supplies from the mines will drop more than anyone in the market can anticipate......
....Sokalsky has divulged that a 10 to 15% drop should occur in overall mine supply of gold within the next five to seven years.
The gold price presently is well over $600,...(now $700)... and the same Sokalsky is talking about much higher gold prices for the next five to seven years. ....
During the past twenty-five years gold was mined following the worst traditions of ruthless exploitation of a resource.
Barrick served both as brain-trust and ring-leader, by mining gold at the top grade of ore defying the tradition and economics of gold mining, and by promoting a thoroughly mendacious, false, and self-defeating forward sales program under the banner of ’hedging’. At one point during the past fifteen years Barrick had to close down operations at no fewer than ten of its gold producing sites as a result of exploitation, because ore reserves became submarginal in the wake of the falling gold price.
...My docoment the process whereby a rising gold price inevitably makes world gold output shrink (in terms of tonnes) is very clearly demonstrated. To explain this, first I have to discuss another remarkable difference between the ways gold and base metals are traditionally mined. This is the deliberate variation of the rate at which mill capacity is being utilized.
The base metal miner is under constraint to mine at the top grade of ore. But he is free to vary the rate of mill capacity utilization in response to changing market conditions.
Accordingly, he will increase it if he has to increase output, and vice versa.
Not so the gold miner, who is under constraint to run his mill full time, as close to capacity as practicable. But he is free to vary the grade of ore at the mill in response to changing market conditions. Whenever the price of gold rises he decreases, and it falls he increases the grade. He does this because the marginal grade of ore varies inversely with the gold price.
If he is to run his mine economically, the gold miner is compelled to go after the marginal grade of ore and leave the better grades alone. He knows that premature exhaustion of his gold mine means dissipating shareholder equity and wasting capital resources. The prematurely exhausted gold mine would have a lot of valuable ore-reserves left behind that would become payable later when the dollar is sufficiently debased. But then it would be too late. Once the gold mine is closed down, it could be prohibitively expensive to re-open it.
Mechanism of Peak Gold
For example, whenever the gold price rises, the marginal grade of ore falls as heretofore submarginal grades become payable.
....(As gold goes up in price, the ore with lower concentration of gold in it becomes worthwile to process.)
Since gold mines run their mills close to capacity, output shrinks every time the gold price has reached a new high plateau, provided that they are managed economically. Uneconomically managed gold mines get exhausted prematurely and fall by the wayside, as they well deserve.
Peak Gold can be confidently predicted since the increasing gold price...causes a world-wide shift in the marginal grade of every gold mine. The marginal grade of ore drops. Since the combined milling capacity of the world’s gold mines is a given quantity, and it can only be increased slowly, after a great capital outlay which management may well be reluctant to make (as it would eat into profits and shorten the life of the gold property to boot), the upshot is that the gold content of mill output is falling.
World production of gold shrinks (in terms of tonnes) with the rise in the price of gold.
But what about opening new gold mines?
As Tom Szabo has hinted, the artificially induced bear market in monetary metals between 1981 and 2001 has resulted in a great reduction in prospecting, exploration of known sites, and development of mines at proven sites.
...the nexus between the welfare-warfare state’s inflationary design and the value of gold, or the tectonics of marginal gold ore underground, has decisively been broken. Governments have expended their ephemeral power to work the miracle of multiplying cash gold through multiplying paper gold. Ditto, no longer can they pretend that gold locked up in ore deposits below surface is a valid substitute for cash gold.
From now on it is „cash gold on the barrel”. Falsecarding in the gold business has been exposed and discredited.
The great increase in world gold output during the twentieth century was a non-repeatable event, largely due to the inflationary propensities of governments under the gold standard artificially suppressing, as they did, the value of gold.
This has caused a world-wide shift in the marginal grade of ore in every gold mine.
The marginal grade was boosted and, with it, the world’s gold output.
That is the background that has created Peak Gold in the first place: a reckless exploitation of a world resource whose production would have increased much more evenly in the absence of inflationary escapades.
But this is history. The present reality is that uneconomic increases in production and naked forward selling are over for good. On the supply side, limited and diminishing injections of newly mined gold shall replace unlimited and ever increasing dumping of paper gold. When you need gold, you demand cash gold, the supply of which from the mines is going to decrease from now on.
I should have chosen "Cut-n-Paste" as a forum name, since that is what I do, mostly.
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Canadian_Nickle
Penny Hoarding Member
Canada
938 Posts |
Posted - 09/17/2007 : 01:37:40
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Gold American Eagles sales suspended
Sales of some 2007 gold American Eagles were suspended by the U.S. Mint late Thursday, Sept. 13, due to the rising price of gold bullion on international markets.
Uncirculated American Eagles with the “W” mintmark went off sale with the expectation they would be repriced and returned to the market on or after Sept. 27, according to the U.S. Mint.
The $749.95 price for the one-ounce coin was barely above the highs reached by gold bullion this week.
Also suspended were bulk sales of four-coin sets of proof 2007 gold American Eagles. These sell at a discount to bulk dealers. Sales of individual gold American Eagle proof sets to collectors continue at the $1,499.95 price.
The Mint will honor all orders for which confirmations have been received by bulk dealers.
For more on "W" Eagle pricing, see Buzz.
________________________
"A nickel's nothing to scoff at."
C. Montgomery Burns
HoardCode0.1: M28/5CAON:CA5Ni35000:CA1Cu1200:CA100Ag345:
CA10Ag250:CA50Ag100:CA25Ag30:CA500Ag48:US100Ag20:CA1000Ag16
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Peak Gold!
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