As the dollar and the stock market continue their preposterous rise in value, it seems that more and more people (especially Americans) are ditching gold. For the most part, this is to be expected. Gold is a safe haven metal, and if the public has a positive perception of the dollar’s value, then they will continue to sell their gold.
In fact, this next year might be just as hard on gold as it was last year. There are signs that the Fed might decide to raise interest rates soon, which would in turn increase the value of the dollar even more.
Granted, the dollar is still standing on shaky ground. With dozens of nations rushing to join China’s new international investment bank (many of them US allies) the long-term prognosis for the dollar is not good. The world is fed up with having to use the predatory petrodollar for all their transactions, and they’re doing everything they can to insulate themselves from its inevitable demise.
But in the meantime the dollar appears to be enjoying its last hurrah, and those who are selling their gold aren’t looking at the long-term trends. There are two very important forces bearing down on the gold/dollar relationship. One is the global move to ditch the dollar described above. The other is the increasing scarcity of gold, and the rising costs of its production.
Recently, Goldman Sachs came out with a new prediction for the gold mining industry. With new gold discoveries on the decline, it appears that there may only be about 20 years worth of known reserves left to mine, and that gold production may hit its peak this year.
However, these numbers might just be an anomaly of the current market. After all, we were told that oil was going to peak years ago, but rising costs drove the market to innovate and find new sources of crude. With the price of gold so low compared to its peak, many gold mines have had to scale back production. Does the chart above factor that in? An analysis of the situation by Zero Hedge seems to put the whole situation in perspective.
Of course, this analysis is meaningless in a vacuum: if the “known reserves” of gold plunge in the coming decade, no matter how many gold futures and GLD short sales are conducted by the BIS, the price will have to go up, and it will go up high enough to where a new surge of gold miners will come online and find thousands of new tons of gold reserves around the globe.
Unless they don’t, and Goldman is correct that “peak gold” may have arrived. This will be even more true if over the coming years the long overdue fiat economic panic finally washes over the globe, and a revulsion toward central bank policies forces a scramble into gold whose value (if not price since fiat currencies will be redundant) soars.
One thing is for sure, the cost of mining gold has been keeping pace with its demand for the past decade, and the desire to abandon fiat currencies has been growing. If these factors combine with a “peak gold” scenario, it could completely derail the whole paper gold market and send prices to unimaginable levels.
But for now, I would take a cautious stance on buying gold. While the dollar is still reaping the benefits of its final rally, the price of gold might still lose ground. Just keep your eyes peeled for that final drop in price before the world ditches the dollar, and you’ll stand to make a pretty penny.
Joshua Krause is a reporter, writer and researcher at The Daily Sheeple, where this article first appeared. He was born and raised in the Bay Area and is a freelance writer and author. You can follow Joshua’s reports at Facebook or on his personal Twitter. Joshua’s website is Strange Danger.