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A perfect storm for gold as mines left empty
The Telegraph (U.K.) ^ | November 18, 2007 | Ambrose Evan-Pritchard

Posted on 11/18/2007 7:37:13 PM PST by southernnorthcarolina

The era of 'peak gold' has arrived.

Try as they might, miners cannot find enough ore at viable costs to replace their fast-depleting reserves, even if they dig miles into the centre of the earth.

Dollar crunch puts gold centre stage

"There's not much gold out there," said Gregory Wilkins, chief executive of top producer Barrick Gold.

"Global mine supply is going to decrease at a much faster rate than people generally believe. Many of the new mines that people are anticipating will never come into production," he told the RBC Capital Markets gold conference in London.

"There is a great disparity between the money spent on exploration and success. It's hard to say where the price of gold is going because we're in uncharted waters. I would say it could easily move to $900, $1,000, or beyond. It could happen very quickly," he said.

We know from the US Academy of Sciences that some 26pc of all the copper and 19pc of all the zinc that ever existed in the earth's crust has already been lost to mankind, mostly wasted in milling or smelting or buried in landfills.

Data has never been collected for gold, and the 5bn ounces of mined over history is still around. Roughly 1bn are in central bank vaults. But the same patterns of exhaustion are emerging.

South Africa's output is down to the lowest since 1932. Much of what remains elsewhere is locked up in no-go countries run by demagogues or serial expropriators.

"You don't put yourself in harm's way. It's a non-starter to invest in a country that takes your mine away from you," said Mr Wilkins.

"The list of countries where we won't go is getting longer. There's Venezuela, and all the countries in Latin America that are influenced by (Hugo) Chavez.

"In Ecuador they withdraw licences after they have been issued: you can't tolerate that kind of instability. Russia is another country where things are deteriorating," he said.

Kevin McArthur, chief executive of Goldcorps, said his group was not setting foot outside North America.

"We won't build a mine where we won't go on holiday. We're even tending to stay out of the US because that has some of the highest political risk in terms of mining investment," he said.

The gripe is that revisions to the 1872 Mine Act will add royalty costs and allow regulators to shut down projects on a whim.

Mr McArthur said global output was on a relentless slide. "We'll see four digit gold. It will have to reach $2,500 an ounce to equal the 1980 record in today's terms, so we have a long way to go," he said

Gold reached a 27-year high of $846 an ounce in early November following rate cuts by the US Federal Reserve, though it has fallen back on profit taking.

Investors seem to be betting on a "Bernanke reflation", suspecting that the Fed will turn the liquidity tap back on to cushion the US property slump.

Tony Fell, chairman of RBC Capital Markets, said the world money supply has been growing by 5pc-10pc while the stock of mined gold has been rising at 1.6pc, creating a mismatch that must be covered.

Mr Fell says the total debt burden in the US has exploded to 340pc of GDP, in stark contrast to the steady levels of around 150pc of the post-War era.

It almost insures further dollar debasement. "We're in the very early phases of a prolonged bull market," he said.

RBC argues that the global dollar system known as Bretton Woods II is "coming apart at the seams" as Asian, Mid-East, and Latin American states start to break their dollar links to avoid importing US inflation.

The result is to resurrect gold, which is fast regaining its role as the world's benchmark currency.

It was the last currency bust-up -- caused by America's attempt to the fight the Vietnam War and fund the Great Society, without adequate taxes -- that lay behind the 1970s bull market in gold.

"The fact that monetary policy in the core was too loose for the periphery triggered the demise of Bretton Woods 1. The late 1960s saw first France and then Germany and Britain all start to swap their dollar reserves for gold. We may well be witnessing a similar situation today as price pressures build in the emerging world," it said in a new report.

However, the bank warned that gold was looking toppy after the blistering Autumn rally and faced a likely sell-off in coming weeks, perhaps to $725-$750.

India's gold buying season is coming to an end with the Diwali Festival. The country accounts for 22pc of world gold demand.

The level of speculative "long" positions on New York's Comex futures market has remained above 20m ounces for five weeks in a row. This sort of pattern is typically followed by a sharp slide, although the global credit crunch and bank scares may change the game this time.

RBC says any correction is likely to be short, with gold probing record highs of $900 an ounce early next year.

Whether the gold mining shares will at last join the party is far from clear. Many have languished through the bull market, and some are trading well below levels reached when gold was half the price.

Costs are rising at $60 an ounce annually. They will average of $460 by next year. From tires, to diesel fuel, and the geologists' salaries, mine inflation is running at 15pc.

Ian Cockerill, head of Gold Fields, said the industry had "shot itself in the foot" by touting production cash costs that were not even close to the real figure.

Hence the fury of shareholders left trying to understand how so many mines could have gone bust when alleged costs per ounce were half the spot price of gold.

"We've deluded ourselves and we've deluded investors by failing telling them about all the other bills we have to pay. Until we tell them the total cost per ounce, we'll never have credibility," he said.

RBC is betting that the gold mining shares will soon start to shine again, enjoying their famed leverage to the spot price.

At $1000 an ounce, it forecasts a share feast: Barrick up 65pc, Newmont 80pc, IAMGOLD 90pc, NovaGold 90pc, and Centerra 100pc.

Purists will always prefer ingots of glistening metal.


TOPICS: Business/Economy
KEYWORDS: gold; peakgold
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Kindly do not shoot the messenger. I post this article not because I agree with it in its entirety, but rather for discussion. Mr. Evan-Pritchard is controversial, to put it mildly, and also a "gold bug."

He makes some good points here, and not just pertaining to gold. All sorts of scarce resources are inconveniently located, with respect not only to geography but politics, too.

Personally, I have maintained an overweight position in gold mining stocks for the last four years. I think everyone should have some gold -- mining shares, ETFs, or coins/bars in a safe deposit vault, as a hedge against a severe economic dislocation. I'm not predicting a cataclysm, but I think it wise to be prepared in such an event.

1 posted on 11/18/2007 7:37:16 PM PST by southernnorthcarolina
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To: southernnorthcarolina
Try as they might, miners cannot find enough ore at viable costs to replace their fast-depleting reserves, even if they dig miles into the centre of the earth.

The earth is 4000 miles "deep," by my calculations. What's the deepest gold mine in the world? Three miles?

I think they've got a ways to go.

Oh, another thing. Are we going to be hearing every single confluence of two factors referred to as "a perfect storm" from now until the end of time? I am sick of that phrase.

2 posted on 11/18/2007 7:43:33 PM PST by Steely Tom (Steely's First Law of the Main Stream Media: if it doesn't advance the agenda, it's not news.)
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To: southernnorthcarolina

I think people are forgetting that modern economies need oil, coal or some other form of energy to function. They don’t need a lot of gold. When gold gets too expensive, gold demand plunges. The other point about gold is that every ounce of gold ever mined is still with us. Not so with oil (which does, however, have its own Achilles heel - it is in demand primarily because it is cheaper to extract than just about every other energy source out there - at $100 a barrel, that demand starts getting shaky).


3 posted on 11/18/2007 7:50:13 PM PST by Zhang Fei
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To: southernnorthcarolina

Several decades ago, a geology prof told me that gold mining in Georgia would be profitable at about 400 an ounce. Adjusting for inflation and higher regulatory costs, it should be about profitable now.

Given your screen name, you’re also probably aware that there are similar known reserves in North Carolina.

If the prices get high enough, the gold will come out of the ground.


4 posted on 11/18/2007 7:50:55 PM PST by PAR35
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To: Steely Tom

So if there were a confluence of two perfect storms, would they cancel each other out, resulting...perfect calm?


5 posted on 11/18/2007 7:51:43 PM PST by Jagman (I drank Frank Rabelais under the table!)
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To: southernnorthcarolina

Ambrose Evan-Pritchard goes around finding people who have an interest in higher gold prices. And he almost never has anything good to say anything good about the United States.


6 posted on 11/18/2007 7:55:43 PM PST by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: southernnorthcarolina
been lost to mankind, mostly wasted in milling or smelting or buried in landfills.

Landfills are the 'goldmines' of the future.
7 posted on 11/18/2007 7:58:46 PM PST by kinoxi
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To: PAR35

Wasn’t the first “gold rush” in the US in NC/GA?


8 posted on 11/18/2007 8:01:08 PM PST by Calvin Locke
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To: southernnorthcarolina
I first heard of Ambrose Evan-Pritchard about 15 or so years ago. He was one of the first with the testicular fortitude to write about all the crooked shenanigans that Clinton inc. was up to. I believe he is retired now. I’m guessing that some of those small market news outlets that actually printed his stories {yes, I believed him} also had some affiliations with the “gold investment” advisers that started to become popular about this time. Coincidence? Maybe.
9 posted on 11/18/2007 8:05:08 PM PST by labette
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To: NVDave

ping


10 posted on 11/18/2007 8:06:01 PM PST by investigateworld ( Those BP guys will do more prison time than nearly all Japanese war criminals ...thanks Bush!)
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To: southernnorthcarolina

bump for later


11 posted on 11/18/2007 8:07:37 PM PST by GOPJ (Hillary "tricky Dick" Nixon/Clinton. - Stiff a waitress - lie about it. Plant questions - lie more)
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To: southernnorthcarolina

With this dopey article, I declare gold to have hit its peak price and will start heading downward.


12 posted on 11/18/2007 8:10:32 PM PST by Cogadh na Sith (Peace Through Light)
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To: PAR35

“Several decades ago, a geology prof told me that gold mining in Georgia would be profitable at about 400 an ounce.”

When gas was .50/gallon, maybe. Same goes for working the old tailing spoils in major gold rush mines. It’s going to have to go much higher to accommodate higher fuel costs.


13 posted on 11/18/2007 8:16:20 PM PST by Rb ver. 2.0 (The WOT will end when pork products are weaponized)
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To: Steely Tom
The earth is 4000 miles "deep," by my calculations. What's the deepest gold mine in the world? Three miles? I think they've got a ways to go.

There's a couple of problems: heat and earth pressure on the sides of the mine.

That's why they can't dig to timbuktoo.

14 posted on 11/18/2007 8:17:40 PM PST by Albert Guérisse
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To: null and void

I like the part about rising geologists’ salaries.


15 posted on 11/18/2007 8:18:17 PM PST by Cuttnhorse
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To: labette
I first heard of Ambrose Evan-Pritchard about 15 or so years ago. He was one of the first with the testicular fortitude to write about all the crooked shenanigans that Clinton inc. was up to. I believe he is retired now.

He's a business reporter for the London Daily Telegraph.

16 posted on 11/18/2007 8:19:18 PM PST by Albert Guérisse
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To: Cuttnhorse
Here ya go...

Chinese Pan for Gold in the Sewage

17 posted on 11/18/2007 8:22:01 PM PST by null and void (No more Bushes/No more Clintons)
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To: Steely Tom

There are so many things wrong with that statement. The most obvious it would be impossible to dig miles into the center of anything.


18 posted on 11/18/2007 8:23:24 PM PST by LukeL
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To: southernnorthcarolina
Personally, I have maintained an overweight position in gold mining stocks for the last four years.

If, as the article maintains, it's getting harder to find economically-viable ore deposits, then mining stocks will collapse eventually, regardless of the price of gold

19 posted on 11/18/2007 8:26:06 PM PST by PapaBear3625
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To: southernnorthcarolina

Keep in mind that it takes 3 years to open a gold mine. It is instructive to look at the inflation adjusted price of gold when a mine closed, and then count the months before it comes back on line.


20 posted on 11/18/2007 8:27:28 PM PST by donmeaker (You may not be interested in War but War is interested in you.)
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