You Can Always Go to Gold

Central banks hold just under 30,000 metric tons of gold -- approximately 19% of the total global supply. (The equivalent of 12 years of annual production, or eight years of annual gold demand at current consumption rates.) If you translate demand into dollars, the gold market is approximately a $95 billion market annually -- $850 gold per ounce and 3,500 tons of annual gold consumption.

At current consumption and production rates, central banks will run out of gold in 25 years. However, central banks won't divest of all their gold reserves, because they continue to harbor some notion that a currency needs to be backed by something more valuable than a printing press.

Gold production more than doubled over the past 40 years, pretty much growing in line with population growth. More than half of all gold ever mined has been produced since 1960, and more than 80% since 1900. http://www.goldsheetlinks.com/production2.htm.

Gold Production vs. Population Growth

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Production has grown with population, however. Production peaked in 2001 and has since declined 5%, forcing ever more sales from central banks to meet demand growth. Major gold producers like Barrick (ABK Quote), Newmont(NEM Quote), and in particular the South African miners Harmony (HMY Quote), Gold Fields(GFI Quote) and others, have struggled to replace reserves, suffering from declining production at their major mines for much of this decade. http://www.goldsheetlinks.com/production2.htm

Annual World Gold Production

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I don't believe that production supply, despite significant new capital raises in the industry since 2004, is going to accelerate over the next decade. New production is just barely increasing faster than production declines at existing mining operations. Furthermore, it takes a minimum of seven years, and often as much as 12 years or more from the time of the discovery to the time gold is first mined. Also, it usually takes an additional five years to ramp production from initial production to full capacity. Consequently, any new discoveries in gold exploration today are more than a decade away from becoming producing mines.

Gold production has declined 5% since 2001, according to the World Gold Council.

Gold production since 2001
	2007	2006	2005	2004	2003	2002	2001	2000
South Africa	272	275	296	350	450	400	400	428
US	255	260	262
Australia	251	251	263
Peru	167	203	207
Russia		152	157
Canada	93	104	119	130	135	145	145	150
China	276	240	224
Indonesia	171	167	167
Papau New Guinea		67	67
Ghana		63	63
Other			699
Total Production	2444	2469	2518				2604	2573