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The gold market is setting up for a perfect storm as the top mining
producers’ supply is forecasted to decline right when demand is likely to
surge. The surge in gold demand will occur as the broader stock markets
roll over and begin their inevitable massive correction. Due to the
tremendous amount of leverage in the system, the coming market correction
will be quite violent at times. If investors believe the correction is
over, and high times are here again, then they haven’t learned anything about
the cyclical nature of markets.
For example, I have stated that Bitcoin and the Crypto Market are classic
bubbles, and wasn’t at all surprised by the collapse of the Bitcoin price
from $20,000 to $6,500 in a short period. However, now that Bitcoin and
the Crypto Market have reversed, I see analysis and comments that anyone
suggesting that Bitcoin is in a bubble is flat out wrong. I
would kindly like to remind these individuals that markets don’t go down in a
straight line.
We can see this quite clearly in the following two charts which came from
the article, As
Bitcoin Nears $11,000, Here’s A History Of Its Biggest Ups And Downs:
The price of Bitcoin in 2013 surged higher, crashed and then corrected
higher before falling over the following year. The same thing took
place in 2013 and 2014:
At the end of 2013, the Bitcoin price surged more than ten times to a high
of $1,150 before falling to nearly $500, reversed direction and shot back up
to $900+. However, over the next year, the Bitcoin price trend was
lower.
Now, I put this chart together to compare the current Bitcoin price trend
with the previous graphs:
As we can see, after Bitcoin fell from nearly $20,000 to $6,500, it
reversed and quickly added $5,000. But, this is exactly how corrections
behave, as they did for Bitcoin in the past. Moreover, the Bitcoin
price may move even higher before it starts to sell-off in the
longer-run. Unfortunately, the notion that Bitcoin will
continue to endure these corrections on its way to $100,000 or $1,000,000
will likely disappoint crypto investors who are counting on a wealthy
lifestyle from their tremendous digital Bitcoin profits.
I realize my opinion on Bitcoin and the Crypto Market runs counter to many
followers or a percentage of the Alternative Media. While a
decentralized cryptocurrency seems much more appealing than our present
highly leveraged debt-based fiat monetary system, it has degraded to nothing
more than mere hype and speculation. Furthermore, even though
blockchain technology offers positive solutions, it can function quite nicely
without the highly speculative crypto coin values.
In a nutshell, blockchain and hashgraph technology can offer useful
solutions, however, rampant speculation causing volatile cryptocurrency
values are worthless distractions. Regardless, Bitcoin and the Crypto
Market are behaving like classic bubbles and will eventually end up at the
same value from where they started. So, it’s probably a good tactic for
crypto investors to consider SELLING THE RALLIES rather than BUYING THE DIPS.
Top Gold Producers Mine Supply To Fall As Future Demand Surges
If we understand that the stock and crypto markets are bubbles, then it
can be said that the opposite is true for the precious metals. Thus,
when these bubbles pop, logic suggests that investors will seek the 2,000+
year store of value history of the precious metals. As I have mentioned
in several articles and videos, investors moved into gold in a big way during
market turmoil. The two record quarters of Gold ETF flows were Q1 2009
and Q1 2016. Both periods had one thing in common, investors panicked
into gold because they thought the markets would continue to head much lower.
While the Dow Jones Index fell 3,000 points and has reversed much
higher, this is only the first stage of the massive correction and crash to
come. Again, stock markets don’t go down in a straight
line.
If we apply the logic that investors will return to buying gold hand over
fist as the markets sell off, they will be doing so right at a time when
supply from the top miners declines. According to Barrick Gold’s
yearend results, they forecast production will decrease from 5.3 million oz
(Moz) in 2017 to 4.7 Moz in 2018 and even lower to 4.4 Moz in 2019. In
just two years, the largest gold producer in the world is forecasted to lose
nearly one million oz of production.
If we look at the top four gold miners past production (Barrick, Newmont,
AngloGold & Goldcorp) and the forecast for future supply, the picture
isn’t pretty:
What a difference since 2011 when the top four gold miners were producing
20.4 Moz. In just six years, the combined production from these top
gold miners fell by 3.7 Moz to 16.7 Moz. While the majority of the
decline came from Barrick, Newmont and AngloGold suffered production
decreases of 700,000 oz each during the same period. The only miner in
the group that experienced an increase in production was Goldcorp.
However, Goldcorp’s production peaked in 2015 at 3.5 Moz and has fallen to
2.6 Moz in 2017.
The problem that all these gold mining companies are facing is the
consequence of the Falling EROI (Energy Returned On Investment) of energy on
their ability to sustain or increase production. Moreover, the rapid
decline in the gold price since 2012 has destroyed the ability for these gold
miners to invest enough capital to sustain or increase production. This
next chart shows the dramatic reduction in capital expenditures (CAPEX) in
the top four gold miners:
The combined CAPEX spending for these top gold miners fell from
$14.3 billion in 2012 to a low of $3.6 billion in 2016. That’s
a staggering 75% decline in CAPEX spending in just four years. While it
is true that new gold mining projects take a decade to arrive at commercial
production status, the rapid decline in CAPEX spending has seriously hurt the
top gold miners ability to sustain or grow production.
Unfortunately, the forecast of continued falling mine supply from these
top gold producers will take place right at the same time investors will be
moving into gold in a BIG WAY. Thus, a spike in demand will cause the
gold price to increase, but it will still take years for these miners to
increase production. Thus, a surging gold price will not impact gold
mine supply for years… if ever.
I say, “If ever,” because there is still the issue of the Falling EROI and
its impact on the U.S. and global oil production. I know that
sounds insane to say as U.S. oil production hits new record highs, but future
production at this level is not sustainable. I posted this chart in a
previous article, and it’s worth looking at once again:
While anti-peak oil enthusiasts are smacking each other on the back
pointing to the supposed success that technology has solved the issue of
resource depletion and thermodynamics, the tremendous rise of U.S. shale oil
production will be a FLASH IN THE PAN. Another easy way to explain the
U.S. shale oil phenomenon is by applying the simple logic…
….. What goes up quickly, also comes down quickly.
Lastly, as the stock and crypto markets correct higher, they won’t
do so forever. Matter a fact; they will likely correct lower much
quicker than investors realize. Also, while the broader markets are in
a bubble, the Crypto market is in a massive bubble.
As investors flee bubble assets, if they are smart and prudent, they will
move into gold and silver to protect wealth. Unfortunately, just at the
time when investors are moving into gold in record numbers, the mine supply
from the top gold producers will continue to fall. This is a perfect
storm that will cause much higher gold prices for investors who are wise
enough to see it.
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