We Don’t Know How to Replace the Great Big Gold Deposits From the Past
By GCRU Gold News on Tuesday, October 17 2017, 04:32 - Permalink
Production is declining and this is going to put an enormous amount of pressure on prices down the road. If you look back to the 70s, 80s and 90s, in every of those decades the industry found at least one 50+ million ounce gold deposit, at least ten 30+ million ounce deposits and countless 5 to 10 million ounce deposits. But if you look at the last 15 years, we found no 50 million ounce deposit, no 30 million ounce deposit and only very few 15 million ounce deposits. So where are those great big deposits we found in the past? How are they going to be replaced? We don’t know. We do not have those ore bodies in sight.
In which period are we today?
Let’s take the Dow Jones (Dow Jones 22956.96 0.37%) Industrial. To my mind, the Dow is essentially an expression of financial assets. Gold on the other hand is what represents hard assets: real estate, paintings and other hard assets. So when you look at the gold cycle from 1966 to 1980, you can see that the ratio between the Dow and the gold price at the beginning topped out at almost 28:1: It took 28 units of gold to buy one unit of the Dow. Then the long term trend reversed and the ratio went all the way down to 1:1. A similar cycle took place in the 30s. The Dow crashed from around 360 in 1929 to 36 in the next years. So it lost like 90% of its value. On the other hand, the gold price went from 20 to 34 and the ratio essentially bottomed out at almost 1:1, like at the end of 1966 to 1980 cycle.
And what does that mean for investors today?
Today, the Dow is over 22,000 and the price of gold is around $1300. This equals a ratio of almost 18:1 and you can clearly see that the trend is starting to roll over. So what does it mean if we go down to a ratio of 1:1 once again? The gold price would hit a big number and nobody is prepared for that. I don’t know any more than anybody else because it’s about the future. But it happened already twice in the past 100 years. So I think the odds that it’s going to happen a third time are pretty good. History does repeat itself, never exactly in the same fashion, but in the same form. Therefore, I would rather own a little bit more gold than not.
We Don’t Know How to Replace the Great Big Gold Deposits From the Past
