Ready for Peak Gold?

...The Chamber of Mines reported that South African gold production continued a disturbing trend: year-on-year production is down 7.5%, and the quality has gone to pot. But it all fits into a bigger picture...

What does that mean? Well, it means that gold is starting to look a bit like oil. With oil, if wells run dry, the market notices and the price goes up. That higher price supports efforts to extract energy in less efficient ways, which is why spending on oil drilling is up; similarly, spending on gold mining was up 50% last year. Unfortunately, as the peak oil folks know all too well, at some point you reach the point of diminishing returns...

But what about gold? What happens when demand shrinks (something more likely to happen in the non-industrial gold sector than in oil)? It's an entirely different scenario. Precious metals, and particularly gold, which is hoarded for jewelry, teeth, and for its own sake as a monetary proxy, have no substitute. As we've reported here more than once, gold is valuable primarily because everyone thinks it should be. If we truly start seeing a peak-gold phenomenon, with less and less supply available to the world, one of two things has to happen.

If we truly start seeing a peak-gold phenomenon, with less and less supply available to the world, one of two things has to happen. One, people will bid gold up to ridiculous highs, because there's less and less supply coming out of the ground. Or two, people will simply stop believing gold is valuable. We're not inclined to think that millenia of crowd-madness is going to end anytime soon...