Gold has survived government manipulation, price suppression and financial disparage for thousands of years. An unofficial international currency has no alliance to any nation, political philosophy or economic system. Gold as a storage of wealth had no significant application in economy until the industrial revolution.
Gold has always been currency of last resort. Fiat and debased currencies have vanished when decoupled from gold by undisciplined governments. Gold is sought out during inflationary and deflationary environments. Government cannot create or print gold so it must accept currency pegged to a value of commodity.
Increasing price and shortage of gold highlights weakness in fiat currency buying power and value. Gold has peaked. This does not to imply there is no more gold to find, mine and produce. Peak gold serves notice of decline in amount, production and supply of gold.
Decline illustrates diminishing quality of ore grade, deeper depth to mining shafts and an increasing cost of energy. Demands on supply of gold from population will also push price to higher levels. Ore grade has declined from 12 grams per tonne in 1970 to 3 grams from leading producing countries.
Central banks and international monetary institutions acted as quasi mine producers when gold was coupled to paper money. Recently China and India became net buyers. Industrialized countries with detached currencies from gold still have huge reserves.
Natural minerals or resources on Earth do not replenish at the pace of consumption by an expanding population. Global gold production declining at 1% per year will hit zero long before everyone alive today expires. This does not take into account demand from ETF’s,
to population growth. Could gold drop to zero in monetary value?
Yes if replaced by another commodity other then fiat currency as history has proven. Replacement commodity would still experience an increase in value as quality and quantity diminishes. One reason price of quality diamonds remain high is because of control. Control of gold at the mine level only elevates price of commodity.
Will the price of gold rise for ever. No, not even a super currency can defy gravity. Production cost under a global cap and trade will influence price to the up side. Potential productive mines will be discovered in developed, underdeveloped and emerging market nations. Political stability, infrastructure and labor will influence production and price.
Economic turmoil in developed countries encourage hoarding of gold there by pushing price upward. As income level around the world approach discretionary access gold price will exponentially accelerate to the up side. Miners will dig deeper as price rise and so will raw materials, production and labor cost.
Why do human continuously return to this ancient relic currency? It grows out of a basic lack of confidence in monetary authorities. When government and central banks exhibit financial discipline, trust is regained from the populous. Citizen will return to a well regulated, monitored and restrained currency bringing price of Gold to acceptable levels.
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