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Gold is a precious metal, and there’s been an ongoing debate about whether or not it can be called renewable. But is the argument really as cut-and-dry as you might think?
It’s hard to say for sure — no one can predict the future with any degree of certainty. But thanks to recent advances in technology, some analysts believe they know how much gold will eventually be available to meet global demand. In fact, these same experts think that by 2050, about half of the world’s current reserves could potentially run dry.
This means that while we might still need to look toward other natural resources like oil to fuel growth, gold itself won’t likely ever deplete completely.
The idea of running out of gold isn’t exactly a new one. People started noticing dwindling supplies back around 500 A.D., but until recently, few people thought anything would really change. The reason was simple: Gold has proven difficult to extract from Earth’s crust, which covers more than 70 percent of the planet’s surface.
And because most gold deposits tend to lie deep underground, extracting it requires expensive machinery and lots of energy.
But as you probably already know, things change quickly on Wall Street (and elsewhere). Over time, investors slowly lose their nerve and pull money out of certain industries, causing shortages and price hikes. When this happens with commodities like oil, food and even precious metals like silver and platinum, prices go up dramatically overnight.
If history tells us anything, it’s that today’s gold prices may only increase further in coming decades.
So why do some economists think gold will become “stranded assets”? Read on to learn where your investment dollars should be flowing if you want to keep them safe.
Worldwide Supply of Gold vs. Demand
If you’re interested in investing in gold, the last thing you’ll want to hear is that it’s becoming too popular. That’s right; many experts now worry that gold prices are getting ahead of themselves and that the yellow metal could soon face an eventual scarcity problem similar to those faced by other commodities like coal and copper. What makes this particularly worrisome is that unlike these two examples, however, gold doesn’t appear to offer any real substitute products.
Unlike iron, wood or plastic, nobody else seems willing or able to step into the vacuum created by rising gold costs.
Right now, the main source fueling worldwide demand for gold comes from small-scale producers located in developing countries. These nations include South Korea, China and India, among others. Although each country produces slightly different grades of gold, the total amount produced annually amounts to 2,500-3,000 tons, compared to 200 tons for the United States.
In addition to making jewelry, gold also serves as a way for governments to store value outside of their own currencies. Because of this, nearly every government on Earth uses gold reserves to make decisions regarding interest rates, exchange values and monetary policy. However, given that the world currently consumes almost twice as much gold per year as nature creates, it’s unlikely that these economies alone could support worldwide demand for another decade or more.
To ensure continued stability, some analysts believe that we must develop alternative ways to produce gold and distribute it throughout society — namely through the use of machines called nanofactories. By using relatively inexpensive electricity and water instead of fossil fuels, researchers hope to create devices capable of creating minute quantities of gold atoms. Then, just as computer manufacturers used semiconductors during the 20th century, companies hoping to enter the gold market could simply purchase tiny bits of the stuff, assemble them together and sell finished pieces to consumers. After several years, such factories could conceivably churn out hundreds of grams of gold per day.
It sounds great in theory, but who knows whether nanotechnology will work out as planned? Below, you will read about the potential consequences of a shortfall in gold production.
One possible solution to the looming shortage involves recycling old scrap gold bars. Currently, roughly 8.100 tons of gold bars are held in the USA alone . If recycled properly, this waste product could help fill the gap between output and demand. Another possibility is to divert gold bullion away from electronics manufacturing and into medical research.
While this strategy wouldn’t directly address the issue of diminishing overall reserves, it could indirectly lead to better health care for humans.
How Much Gold Will We Produce Next Year?
With so much uncertainty surrounding the economy, it’s tough to pinpoint specific figures related to gold consumption. Still, based on historical trends, it appears that we don’t have much longer before we start feeling the squeeze. According to some estimates, the average American woman owns approximately 5 ounces (150 milligrams) of gold, while men typically own 12 ounces (340 milligrams). With population increases expected to continue well beyond 2030 and consumer desires remaining high, it’s clear that gold production needs to grow substantially within the next 10 years.
However, given that existing gold reserves represent only 0.1 percent of worldwide stock, it’s important to remember that this figure includes everything down to dirt. For example, scientists estimate that 90 percent of the actual gold found in nature remains buried beneath layers of soil and rock. Even though 99.9 percent of mined gold exists below ground, the percentage of recovered gold lost to thieves and industrial accidents continues to rise.
Additionally, many large-scale gold projects require extensive environmental impact studies, meaning that millions of cubic feet of fresh air and tens of thousands of acres of rainforest are routinely destroyed. All told, it’s estimated that an additional 50 million ounces of gold remain undiscovered
Some analysts claim that technological advancements along with higher labor wages in emerging markets could boost annual gold production above 3,000 tons. Others argue that increasing demand coupled with lower production numbers actually encourages greater efficiency and therefore boosts profits rather than boosting overall output.
Either way, if history holds true, gold production will certainly need to double within the near term to maintain stable pricing levels.
A major concern associated with increased gold usage is inflationary pressure. Since gold tends to cost more to manufacture than other types of goods, the result is often pricier items for consumers. However, according to some economic models, the long-term benefits of such inflation outweigh short-term losses.
Some critics suggest that a shift in purchasing power due to growing gold demands leads to poorer quality of life for citizens. To combat this effect, some experts advocate diversifying individual portfolios with various forms of scarce commodities.
While some economists claim that a gold shortage will never happen, what happens if their predictions aren’t correct?
Although we mentioned earlier that some economists fear that gold could experience a permanent shortage, others warn against speculating upon such an outcome. They point out that such fears stem primarily from the assumption that capital investments made in the 1980s haven’t yet shown significant returns.
Should this prove accurate, then investors could suffer serious financial loss resulting from poor planning.
What Happens If The Gold Estimations Aren’t True?
Given that no one knows precisely how much gold lies hidden below ground or how much of it exists in the form of dust particles floating through space, it’s easy to understand why so many experts are skeptical of forecasts calling for imminent scarcity.
Despite widespread concerns, the reality is that we could end up having far fewer gold stock than previously anticipated or far more.
For starters, some analysts disagree over the rate at which world GDP grows. One school argues that expansion will slow significantly in coming years, whereas proponents of the opposite view say that growth will continue unabated. Given this split, it’s conceivable that demand for gold rises faster than production over the course of the 21st century.
Also consider the effects of climate change and pollution. Rising temperatures could trigger droughts and heat waves, both of which affect crop yields and cause farmers to burn gasoline to prepare fields for planting. Meanwhile, increased carbon emissions contribute to smoggy cities, acidifying oceans and destroying coral reefs. Taken together, these factors have caused plenty of environmentalists to question conventional wisdom that humanity continually expands without harming the environment.
Add to this mix the tendency for human populations to live longer, healthier lives, and it becomes obvious why some people are starting to feel uncomfortable with the notion of infinite material progress.
Finally, let’s not forget the biggest threat facing gold today: terrorism. Following 9/11, the U.S. minted special commemorative coins featuring images of airplanes designed to resemble modern fighter jets. Other countries followed suit, sparking worries that terrorists could someday launch coordinated attacks involving highly efficient weapons of mass destruction.
Today, the International Atomic Energy Agency believes nuclear materials would provide the best defense against such threats. At present, however, governments aren’t prepared to handle the task of safeguarding atomic stockpiles effectively.
Despite the many uncertainties involved, some observers contend that we shouldn’t panic quite yet. Most agree that despite periodic fluctuations, gold will always retain its attractiveness as a commodity and that prices will ultimately stabilize around a reasonable level. Therefore, the key for investors is to take advantage of opportunities to buy gold whenever they arise.
Whether that translates into buying shares of gold miners, trading futures contracts or simply keeping a little gold stashed under the mattress, the bottom line is that everyone deserves to enjoy the peace of mind that comes from owning gold.