Where Does Gold Come From? (It’s Not What You Think And It’s Not So Secret)

If gold production is peaking and the mining companies aren’t exploring like they used to, then where is the new supply going to come from?

by Simon Popple of Brookville Capital

Where does gold come from?

It’s not what you think!

Gold is not formed on the Earth like diamonds and many other gems and minerals.

In fact, most scientists believe that gold came to earth from outer space -in large meteorites that struck the planet millions of years ago.

By studying ancient rock samples with high-precision instruments, scientists have found evidence that accessible gold (that being mined), arrived via asteroids when the earth was still fairly young.

Here’s another interesting fact: During the initial formation of the planet, heavy iron sank into the middle to form the planet’s core, taking other heavy elements, like gold, with it. That’s where most of the gold on the planet should be, rather than in the crust, which is where we tend to find it.

Just think about that for a minute.

It arrived from outer space, millions of years ago and (at the moment) you can buy it for around $1,300 per ounce. Not bad.

Not only is it rare, but it’s becoming increasingly difficult to find. There are fewer and fewer major gold discoveries and exploration spending has been falling off a cliff. Which is probably one very good reason why the majors are merging.

Newmont’s acquisition of Goldcorp and before Christmas, Barrick acquired Randgold Resources. I’m sure there’ll be more….a lot more.

If gold production is peaking and the mining companies aren’t exploring like they used to, then where is the new supply going to come from?

Let me let you into a not so secret, secret….

The Juniors.

Many have already burnt through millions of dollars on exploration. Often watching helplessly as their share prices tumble to rock bottom levels.  Some teetering on the brink of bankruptcy.

They’ve perhaps already proved 1 or 2 million ounces – but the majors need more than that.

It’s really all about potential, so those with potentially large deposits could well get snapped up at very attractive prices. Many investors are fooled by large resources. Often a large resource can come from many different deposits, but that’s not really what the majors are looking for, particularly if the deposits are not close together.

They want large deposits — ideally open in all directions. Which means there could be a lot more gold there.

What’s could happen?

Look what happened in the last bull market in the late 1970’s and early 1980’s.

Do your own due diligence.

Perhaps go further back and take a look at some of the share prices of the gold companies such as Homestake Mining in the Great Depression. If history were to repeat itself several mining companies could see their share prices increase dramatically in value.

Imagine what could happen — the major mining companies being forced to buy these explorers to meet demand if the gold price takes off. The explorers don’t have the processing plant’s in place to crystallise value – these can take years to build.

Allowing a nearby producer to dangle a very tempting carrot in front of beaten up shareholders who’ve “been through the mill” Potentially making a lot of money for those who’ve stuck it out.

But in these challenging times…..you’ve got to admit…things “just don’t feel right” – gold could also be a critical store of value. In a nutshell….its been around for thousands of years. It’s trusted.

And right now, I think trust is in short supply.

Think of it this way. By making these huge acquisitions the majors are essentially admitting there’s a big shortage of the metal.

And this trend is just getting started.

Right now, I believe there is more risk to not owing gold than owning it.

Please take a look at www.brookvillecapital.com if you’re interested in gold.