Late last year, when looking at a Goldcorp slideshow, we noticed something surprising: the gold miner had forecast that 2015 would be the year when gold production would peak among the mining industry.
The combination of very low concentrations of metals in the Earth’s curst, and very few high-quality deposits, means some things are truly scarce. Perhaps unsurprisingly, these are the so-called precious metals (and diamonds), and that their value is derived from the fact they are rare.
Their relatively scarcity, and the market’s belief that new discoveries will be limited, is what drives the price of these super rare commodities. Take diamonds as perhaps the most extreme example. A diamond has very little intrinsic value. Its value is determined by a belief that it is rare and, for a natural diamond, unique.
Gold has been used as a measure of wealth for more than 4,000 years, as the ancient Egyptians soon worked out that gold was not only shiny and heavy, but rare.
Unless they don't, and Goldman is correct that "peak gold" may have arrived. This will be even more true if over the coming years the long overdue fiat economic panic finally washes over the globe, and a revulsion toward central bank policies forces a scramble into gold whose value (if not price since fiat currencies will be redundant) soars.
The answer is unclear, but what is certain is that like the price of oil over the past decade and until last fall when price discovery finally became somewhat credible, what happens in the physical realm has absolutely zero marginal impact on the price of commodity which has about 100 ounces in deliverable paper contracts for every ounce in underlying. It will be only after the gold price distortions via the derivative market are eliminated that such trivial price-formation forces as supply and demand are once again relevant.