vrijdag 27 maart 2015

Peak Oil and Peak Gold

What happens during peak production?

Everyone thought the U.S. oil production was going to decline from 1970 onwards. This was the forecast in 2009.


 But suddenly in 2009, U.S. oil production surged.


Which resulted in global oil production rising. So no peak oil here...

But let's put that aside for now and look at what happened in 1979. Oil rose to the peak in 1979, due to the fact that oil production was declining from 1970 onwards. So during peak production in 1970, oil production in the U.S. started to decline. When the oil production declines, the price of oil skyrocketed till the peak of 1979. The price of oil stopped rising, because peak oil was just a myth at that time, North Sea oil production came into existence and fueled the 1980's boom.

But also that North Sea oil production boom peaked out in 1995, which caused the oil price to rise from 1995 to a peak in 2008. 

Then the oil price declined to today's price due to the shale gas boom. But I expect that this added production will also cease to exist. So we finally come to a "real" peak oil situation and when that happens, oil will go up.

Now let's go to the peak gold situation.

According to Goldcorp gold production is peaking now. So you know what that means: higher gold prices. Unless some miracle "shale gold boom" starts to happen.

Let's analyze. Gold production fell from 2003 till 2008, which coincided with a rise of gold price from $300/ounce to $1000/ounce. Then gold production began to rise from 2009 till 2015 peak production, which coincided with a decline in gold price from $1800/ounce till $1200/ounce. In the next years, production will fall, which will coincide with a rise in gold price. One word of caution though, the decline in gold production is attributable to low grade, high indebted mines going bankrupt, so if you want to ride the higher gold price, buy the high grade, low indebted gold mines that make profit. On the other hand, you do know that 2015 will be the bottom for gold, so you could go for leverage at this moment, but you will have to take that risk.

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