his posting has been prompted by a couple of emails from Jeff Christian of the CPM Group in New York, which I would rank alongside GFMS and Metals Focus as providing some of the best precious metals supply/demand analysis for gold – as well as for a number of other metals, out there. Jeff tends to be vilified (unfairly in my view) by the ultra gold bull community – and especially by GATA – because he is an outspoken non-believer in the gold manipulation/price suppression argument, but be this as it may – there will always be differences of opinion on contentious subjects like gold price suppression. I consider Christian, and his group’s understanding of the fundamentals of the precious metals markets to be top rate.
His emails were prompted by my post of yesterday regarding Goldcorp chairman Ian Telfer’s views on peak gold [see: Peak gold according to Ian (Telfer)]. Christian largely agrees with my comment, and Telfer’s, that peak gold, or thereabouts, is effectively already with us and again with my comment that Telfer’s statement that all the major gold deposits have been found already was unrealistic.
CPM Group and Christian though take the argument a few steps further in putting out a release yesterday (presumably also in response to Telfer’s assertion). “We project gold mine production will fall sharply over the next decade, but in no way do we see that as a function of running out of gold to mine or large discoveries. It is a function of lower gold prices following the spike up into 2011, and poor management of exploration programs. Give us higher prices and better management, and we will give you more mineable gold than the world wants to buy!”
I certainly couldn’t have put it better. Gold supply is all a question of the gold price and significantly higher prices will both stimulate exploration and ultimately lead to the development of some of the large low grade deposits referred to in my article of yesterday.
Christian himself suggests that there could well be massive deposits still to be found in areas like Siberia and China – and we would add Africa and Latin America (particularly the Andean cordillera) to this.
However we would also point out that the key to all this is the word ‘significant’ in terms of the gold price rise needed to stimulate a substantial production increase. Also the long lead times to bring a big new mine into production mean that whatever level the price reaches it may be well into the next decade, or beyond, before this is likely to eventuate. Indeed initially a higher gold price could, ironically, lead to further output falls as miners are economically able to work lower grades and without corresponding milling expansions that would lead to lower metal production. It takes time for the industry to play catch up!
But meantime current exploration levels are likely to lead to additional small and medium sized deposits being found, and developed, in currently prospective areas of the world and these may slow down the ongoing decline in production due to declining grades and to aging mines reaching the ends of their lives. Peak gold may yet not be a major factor in gold price stimulation without demand increasing substantially as well.