Because of its many unique roles and properties, no one factor determines the price of gold. The calculus is more complex than that. However, if there's one thing that's an inescapable part of the gold price equation, it's the dynamic between supply and demand.
One side of that equation—supply—may undergo a dramatic shift in the coming decades.
According to the CEO of Franco-Nevada Mining, the gold mining industry is facing a problem: The continued discovery of large new gold deposits is simply not forthcoming.
The Franco-Nevada CEO and co-founder Pierre Lassonde told journalist Frank Holmes that deposits with 30 million or even 50 million troy ounces of "proven and probable" gold beneath the surface were relatively commonplace through the 1990s. Yet this trend has dropped off dramatically in the past 15 years, with not a single 30-million-ounce deposit discovered in the time since.
Are we really running out of big gold deposits? Even with modern technology and the most advanced exploration methods, miners are not finding new deposits anywhere near as large as the ones seen over the last 130 years. Part of the issue is the lack of funding for new exploration with gold trading below $1,300 per ounce.
Even as the financial fortunes of miners improve, however, we may be in the midst of a phenomenon known as "Peak Gold": after this theoretical turning point, global gold production will enter perpetual decline barring some revolutionary discovery or technological breakthrough.
Holmes' reporting appeared on Mining.com as well as on Business Insider.
The concept of Peak Gold is becoming more pertinent now because the pressure is coming from multiple angles on the supply side. Not only are large deposits increasingly difficult to find, but the existing mining operations on super-sized deposits, like those in South Africa and Indonesia, are nearing the end of their own life cycles. It could take 10 to 20 years to bring any new active mines online if a new giant deposit is found, by which time the biggest existing projects will virtually all be exhausting their underground reserves.
So right at the time that big gold deposits are harder to come by, the major deposits that are currently being exploited will begin to dry up. This portends a situation where gold demand starts to outstrip how quickly the world's annual mining output can replace supply. In terms of simple economics, this could send gold prices sharply higher in the coming years.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.