In every reckoning of the above-ground amount of gold that exists in the world, one thing is for sure: There’s not a lot of the yellow metal around. Based on information from the World Gold Council, science writer Robert Matthews estimates the entire world’s known gold reserves could be laid out on a soccer field and only reach about a meter high.
But now that investors throughout the world are flocking to buy gold, mining companies are betting it will be profitable to gear up and start digging again. Gold mining occurs in cycles. When the price is low, producers will sell off assets to reduce debt. When the price starts to move up, as it has recently, everybody wants in on the action.
After he’d sold off a large part of his stock portfolio several months ago, billionaire George Soros bought nearly nineteen and a half million shares of Canadian gold mining company Barrick Gold. Meanwhile, shares in the Philadelphia Gold and Silver Index have surged 98% compared to the S&P 500’s modest 3.5%.
Now Barrick and other major producers including Kinross, Goldcorp and Australia’s Evolution Mining, are planning for accelerated mining activity. Even in Egypt, where pharaohs were once laid to rest in coffins layered in gold, the mining industry could heat up once more.
In 2011, as gold prices dropped, and Egypt was being torn by political pandemonium, investors in the mining industry, already displeased with the draconian trade terms laid out by the government, were driven out of the country. But now the government is looking to improve on the measly one percent of its gross domestic product (GDP) contributed by its only gold-producing mine, Centamin’s (CEY.L) Sukari. In 2015 the Egyptian government claimed it wants mining to contribute at least five percent of GDP within ten years and it’s loosened regulations to help achieve this goal.
This worldwide flurry of mining investment is occurring as demand for gold – and prices – continue to rise. Last year, research and consulting firm McKinsey & Company published an article identifying areas in which digital technology developments can make mining worldwide faster and more efficient. With innovative gear like “smart goggles” that enable better communication and clothing with built-in sensors to alert workers to hazardous conditions, miners now have more sophisticated and efficient techniques for locating ore. But even with these innovations, developing a gold mine and getting it running at peak production can be a process that takes years, which indicates investors bankrolling these expansions see demand continuing and even escalating over the long term.
For most of us, that same period of several years into the future is likely to hold both bad and good. The economic picture, both here and abroad, is increasingly cloudy, with thousands of layoffs every month, and China still roiling markets worldwide.
Hopefully, you’ll be starting to plan your retirement, but is this good or bad news, particularly in terms of your IRA/401(k)? Depend on how much you’re financially dependent on the stock market’s performance. Good to know that at least one group of experts believes the safe haven tangible asset that is gold will still be going strong, even years from now.