Peak Gold Production Could Spur Gold Miners’ Next Move Higher

gold600X300Back in 2007, we saw a peak in the discovery of new gold deposits. Since then, less and less new large sources have been unearthed, despite a surge in exploration budgets.

Now some nine years later, 2016 may well be remembered as the year that gold production peaked. That’s because there’s a 10-12 year lag between first discovering a gold deposit in the earth, and actually being able to mine and refine it into deliverable gold.

Without enough new gold to meet rising market demand, the simplest theory in economics will take over, and prices will rise. This, in turn, will increase margins for miners and actually allow them to spend more money on future production. There’s been a multiyear pause on many miners’ projects because of the decline in gold prices from 2011 through early 2016.

How much of this possibility is already priced in? It’s difficult to say, but a near-term cooling and consolidation in gold miners’ shares may be a healthy development before they go on another big tear higher.

Gold currently sits at $1,341.80 per ounce. The Market Vectors Gold Miners ETF (NYSE:GDX) fell $0.17 (-0.57%) to $29.57 per share in premarket trading Friday. The GDX, which is the largest gold miner ETF by assets and volume, has gained 116% year-to-date.

GDX-2016-07-29

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