Gold Outlook from 2000 to 2020 - Revised

October 31, 2002

Two years have passed since the above essay was written and much has happened in the interim; therefore it is time to revisit the essay and update the statistics it contained. The central theme and important message of the essay was the simple truth that there is NOT a large amount of gold remaining in the crust of the earth to be recovered by future mining operations. The amount remaining is less than half of the amount that has already been found and produced from the beginning of civilization up to 2002. I postulated that this important fact would catch the world unaware in the next 10 to 20 years and precipitate many large problems as awareness spreads throughout the economic system.

Much or most of the information contained in my original essay is still valid, although many of the statistics need to be revised to bring the data up to date. For example, I calculated in the original essay that at current production and consumption rates for the year 2000, we had only enough ore remaining to supply mining operations for another 16 years. With updated numbers, that number has dropped to near 13 years. If those numbers do not impress you, I think they should. Why you ask? When any scarce resource runs out or runs low many things happen. First of all the price of the resource rises (sometimes exponentially). Everyone scrambles to find new sources for the resource or substitutes for the resource. Almost surely, any new sources of the resource are harder to obtain and certainly more costly due to many factors too numerous to discuss here. In the case of gold, there are few substitutes and the ones available will also skyrocket in price. So, that is why all of us should be interested in this situation.

I will briefly update the supply/demand numbers that are used to determine the 13-year life of existing ores. In the U.S. Geological Survey report on gold in 2002, they have the following to say on the above ground gold supply. "Of an estimated 140,000 tons of gold ever mined (Worldwide), about 15% is thought to have been lost, used in dissipative industrial uses, or otherwise unrecoverable or unaccounted for. Of the remaining 120,000 tons, an estimated 33,000 tons is in official stocks held by central banks and about 87,000 tons is privately held as coin, bullion, and jewelry." It is the 33,000 tons of central bank gold that has helped create a problem. On first glance, having 33,000 tons of gold sitting in central bank vaults, approximately 24% of all the gold mined from the dawn of civilization, appears like a great overhang of supply to the present market. Add to that perception the fact that a new generation of central bankers concluded that all this gold sitting in their vaults is useless since it does not earn interest. The new central bankers first answer to their problem of what to do with this dead gold in the vaults was to devise a scheme to loan (lease) this gold to various business entities, thereby earning a modest rate of interest. Behold, a dead asset was turned into a profit center. Part of these loans were made to primary gold producers who sold the gold into the current market, thereby increasing current supply and depressing prices. They used the money received from these gold sales for current expenses, and planned to replace the gold out of future production. These maneuvers stimulated current consumption while reducing the amount of gold available in the future; assuming the gold is later returned to the central bank vaults from future production. (When and if this gold is returned to the central bank in payment for the loan, the short-term earnings of the gold producer will be lowered; this is obvious because the gold producer obtained the money and the profit for the gold when they borrowed and sold it into the market earlier.)


We now need to review the recent supply/demand numbers for gold. Turning to the USGS official publications, we find they list worldwide mine production for gold at 2,550 tons in 2000, and 2,530 tons in 2001. The average for these two years is 2,540 tons, so we will use this figure in our analysis. On the demand side, according to the WGC's latest publication, the 2000 usage was 3,794 tons and 2001 3732 tons. We should note that the WGC states in the literature that these numbers are not complete; because they only include statistics from countries they feel have reliable numbers. An estimate for the total world demand would be at least 10% higher than these numbers. In this analysis, we will use a conservative number for world usage of 3,760 tons; fully realizing this figure is probably low by several hundred tons. When we compare these numbers, 2,540 tons of supply and 3,760 tons of demand, we come up with a deficit of 1,220 tons annually (Other sources project this deficit to be much larger and we will discuss that aspect later). This deficit has been covered from central bank holdings.


How much gold remains unmined in the crust of the earth for future mining operations? For this number we go again to the USGS. Their most recent official publication states that there remains only 50,000 tons of gold available for future recovery (see Note 1 below). This should turn on a light bulb in our consciousness. Let's examine why!

We previously mentioned that from the dawn of civilization only 140,000 tons of gold has been mined. Of this amount, only about 120,000 tons remain. We just learned that from now until the end of time we have only 50,000 more tons of gold available. That is a frightening revelation. We are consuming gold at the rate of 3,760 tons per year. That means we only have about 13 years of gold available until we run out of gold to mine (that number was 16 in my original essay). What happens then? Doesn't this information make it apparent that it is the height of folly for world governments to be currently wasting our gold reserves? Isn't it also obvious that it is again the height of folly to have an official policy to depress the price of gold when this only increases consumption and moves closer the date when we run out of gold? I think so. An artificially low price of gold increases consumption while simultaneously decreasing production due to unprofitable mining operations. A crisis is brewing, and few people are aware of what is happening. They are focusing on current above ground supply (Which is likely smaller than they believe) and are not looking to the future scarcity of gold. This is a perilous error.


My original essay and this update tell a simple story. The yearly gold supply is falling while the yearly gold demand is rising. These trends are happening for a myriad of reasons and they will precipitate wide ranging changes in our economic system.

If the facts in this update stimulate your interest in this topic, I suggest you read my notes below and then go to my original essay and read it, because it has a lot of detailed information I did not bother to add to this update although the information is important. (A good example is the per capita gold information contained in the original essay.)

The probable outcome of these changing market forces should be for gold and all precious metals prices to show a rising trend over the next decade, with the gold price rise going geometric at some point. As this scenario plays out it should help the trend of the Dow to Gold Index continue in a downward path until the ratio drops to the 1 to 2 area. It will be very interesting to see just how this plays out and to see where the price of gold will be and where the Dow Index will be when they are at the 1 to 2 ratio level. View a chart of this Dow/Gold Index at (The chart is available near the top right of the page listed as the Dow/Gold Ratio.)

The years ahead promise to be both interesting and turbulent as this scenario develops. In addition, the world will be a different place when the scenario finally unfolds to its ultimate conclusion. I believe the conclusions that can be reached by a prudent individual are fairly obvious.

Special Notes for Clarification.

1) When I wrote the original essay, a few sharp-eyed readers noted when reading my USGS referenced material that it might be more reasonable to use a figure of 78,000 tons (Reserve base) in place of the 50,000 tons (Reserves) I used. The 50,000 figure covers gold resources that are currently economic to mine, marginally economic, and even some that are sub economic. When you include the additional gold resources that bring the mineable reserves up to 78,000 you are talking about really difficult and expensive ores that will reasonably not be available in the near future, if ever. To fully understand this data one needs to go to the USGS website for gold and look at Appendix C for definitions of the various ore classes. One thing I believe is certain. When we get to the point of needing these additional resources, the price of gold will be very high so that they can be mined at a profit. I believe the price at that time will be so high that it will be like seeing the Dow go from triple digits to five digits over the last 30 years.

2) The yearly demand figure used above of 3,760 tons is very conservative according to some gold watchers. In my original essay I had a section on opening up of the gold market in China. That has largely been completed and some sources feel gold demand within China will add several hundred tons to demand in 2003. There is a movement within the Islamic community for a Gold Dinar. That could add greatly to the gold demand in the years ahead. In addition to the demand from the Gold Dinar, there is still the real possibility for increased investment demand from other people all around the world. All of these items could easily raise gold consumption to the 4,500 to 5,000 yearly levels.

3) The yearly supply of gold may be overstated in the figures I have used for several reasons. Some industry experts feel gold mine production could fall 10% in 2003 due to mine problems with lower grades being processed. During the lean years of low gold prices (which are continuing) many gold produces used their best higher-grade ores and now have to use more costly lower grade ores which will yield fewer ounces of gold at a higher production cost. Another factor possibly lowering the supply of gold in 2002 and 2003 will be the lifting of hedges by gold borrowers. They will not be borrowing gold to add to the market, they will be removing gold from the market to return to the lenders (Central Banks). All of these factors could lower gold supply in 2002 from 2,540 tons to what? 2,000 tons maybe?

4) If we take a scenario of 2,000 ton production in 2003 and consumption of 4,500, we are left with a deficit of 2,500 tons. We need to wonder what that will do to the price of gold? In addition, a consumption rate of 4,500 tons per year would lower our in ground supply of ore to about an 11 year mine supply. A decade can go by rather quickly and I doubt very much that we will have to go very far into that decade before strains in the gold supply and demand balance will show up in higher prices.


1) USGS:

2)World Gold Council:


Joseph M. Miller is a 70-year-old retired investment professional who has been a student of and a participant in the financial markets since the 1950's. He earned a MBA degree from the University of Chicago and is a retired member of one of the large US financial exchanges. He lives in the Great Smoky Mountains and concentrates on handling his personal financial portfolio.

The California Gold Rush began on January 24, 1848 when gold was found by James W. Marshall at Sutter's Mill in Coloma.