Gold needs to be extracted from the bowels of the earth in a gold mine. It needs to be found and it needs much capital and technology and specialist labor to get small amounts of gold out of the ground. The process of development can take a very long time and many gold mining companies become insolvent and are not successful in producing even one ounce of gold. When companies are successful, it is often only many years later that one ounce of gold is produced.
This difficult task means that while U.S. money supply in the form of M2 has risen by 30% since June 2008, gold production has fallen by 1.7%, despite rising gold prices. While the concept of “peak oil” has been widely debated in markets, that of “peak gold” is less well known. This will change in the coming years.
Rising cash costs have been fuelled by declining ore grades and higher raw material costs – especially with regard to higher oil and energy costs. Mining remains a very energy intensive business. Ore grades have declined 8% annually, while cash costs have had a 14.1% CAGR since 2005 for senior producers.
Cost inflation has been driven by fuel, labor and key consumables, which have only been partially mitigated by the rising gold price.
Global gold production remains at its level of the late '90s, even though prices have risen to over $1,700 per ounce from $252 per ounce in 1999 or roughly 16% per annum in dollar terms.
Resource nationalism is beginning to become an important factor again. This will also almost certainly affect supply at a time when demand is increasing from people throughout the world and many hedge funds, pension funds and central banks’ due to geopolitical, systemic and monetary risks.
The lesson of QE is that fiat currencies increasingly grow on trees. Gold does not. This is the primary reason that gold will continue to protect investors in the coming months. ]
Just as I’m typing this blog post CNBC just had hedge fund titan Ray Dalio on who just kicked Warren Buffet, the supposed ‘Oracle of Omaha’, in the teeth when asked about private ownership of gold. When asked what the average investor should be looking towards as investments in this heavy money printing phase of the “Great Currency War of 2012” Dalio responded that gold bullion, not stock market paper derivatives associated with precious metals, is what the average person should be focusing on to circumvent the inflationary consequences of the FEDs recent announcement. The host then attempted to back track and have him discredit his brilliant suggestion by bringing up Buffet and his minion Charlie Munger who famously flat out said “Gold makes sense if you are a German Jew pre WWII who is attempting to sneak across the border into Austria, it would makes sense to have a few gold coins sewn into the lining of your clothes, but other than that it’s a stupid investment because it doesn’t pay a dividend”. When reminded of Buffet and his cohorts position on gold he firmly responded: “I think Mr. Buffet is making a foolish mistake by discounting the ownership of gold in this environment”!
You have to ask yourself what the motivations are of the people who bash gold & silver bullion as investments?
This is why you must begin to separate yourself from the need to be accepted to by the “group think” that has been programmed into society over the past couple decades and re-establish your innate desire to be an individual once and for all before the consequences of being a lemming marching off the cliff bankrupts you. Unfortunately play time is over and you must begin to look towards the worst case scenario in order to allow your imagination to forecast how bad things could actually get in order to accurately gauge where you currently are. Once you have envisioned the possible outcomes that historically have come from monetary policies such as we are currently witnessing, moving a portion of your investing portfolio & cash positions into gold & silver bullion begin to seem exceptionally sensible. I must warn you, the other consequence that will come from this transition back into logically thinking of money and inflation will be that you will become very angry when you realize you have been lied to by those Wall Street titans who needed you to march of the cliff like a lemming so they could recovery their losses and nothing more. Once the rage subsides & the astronomically beneficial nature of your transition becomes clear you will more than likely embrace the truth and begin to focus heavily upon the wealth preservation that is ONLY offered by gold & silver. This is when you will be lumped into the “Gold Bug” camp by society in hopes of scaring you back into the group think, but I can assure you once you are liberated by logic you will not care what they call you as you will be impervious to the stupidity of endless fiat money printing from this point forward.
The Great Currency War of 2012 will claim many victims as it consumes the globe and as it gains momentum real wars will begin to pop up around the world which will the the signal that things are getting to a point of no return. This will be when the gold mania phase will begin and you will become the smartest guy in the room. Remember that ‘having a revolutionary thought’ means that you have to go against the group think’s accepted wisdom. You will be chastised for your willingness to go against the grain, but in time you will not only be the wise man but the one with the wealth as eventually things may get bad enough that the only item of value will be the one thing governments & corporations cant print or get for zero percent interest from the guys who’s campaign they funded. At the very least we can admit that the dollar offers ZERO PERCENT INTEREST (ZIRP) and doesn’t make sense for anyone to hold for the time being, and probably won’t for the foreseeable future. So this means that you need to find a wealth preservation item that will hold its value until we either get into an actual recovery or the world follows China into the new global paradigm now that they are offering unlimited oil in Yuan which could kill the petro dollar and end the worlds dependency on the dollar. It is a far better strategy to PREPARE than to attempt to REPAIR your portfolio once the impact of indefinite $40 BILLION per month in banker bailouts destroys confidence in the dollar. Tick, tock.