The gold standard was abandoned long ago, and a large portion of many countries’ gold reserves were sold down with it. The selling got particularly brutal during the 1990s and early 2000’s, where strong economic growth made bullion less attractive and in general just unimportant. 

The precious metal copped a decade of slow dwindling price retreats, as events such as the Asian Financial Crisis and the Dot Com Bubble were brewing. Inflation was relatively under control during this time, but the macroeconomic party would soon be over with the revelation of the biggest bunch of toxic loans tied to inflated assets in history (so far) – the Global Financial Crisis. 

Gold had already started its run well ahead of this catastrophe that some people like Michael Burry (who just last week bought US$1.6 billion of put options against the S&P 500 and Nasdaq with end of year expiries – making up 90% of his current portfolio), who was sifting through the mortgage backed securities data in the subprime market as early as 2005, were starting to cotton on to. The commodity performed incredibly well from the early 2000’s when it was around US$260/oz, all the way through to 2011 when it broke US$1,800/oz – which occurred in a climate with persistent negative real yields and inflation.

The switch finally flicked for central banks in 2010, ironically right near the height of gold’s cycle and right before it endured another decade of downtrending. Perhaps it was because they knew the world was in for a decent innings of suppressed interest rates and stimulus that has resulted in the term ‘Quantitative Easing to Infinity’ becoming the mascot of monetary policy. 

Gold’s recent and consistent trading near its all time high hasn’t stopped the buying, in fact, it’s likely spurred it on. Central bank’s increased their net gold reserves by 1,136 tonnes worth US$70 billion in 2022 – the largest amount of any year in records going back to 1950. This trend continued into 2023 during the March quarter, as central banks bought a net 228 tonnes of the precious metal, the highest amount for the year-to-date period since they became net buyers in 2010. 

As at the end of 2022, it is estimated that there have only been around 208,874 tonnes of gold ever mined, the volume of which would approximately fill one Olympics-sized swimming pool. The amount of proven reserves left in the ground is just 52,000 tonnes. Central banks now own one fifth of the gold ever mined.

There is plenty of life in the private sector as well. The Australian Competition & Consumer Commission (ACCC) has approved the proposed sale of Newcrest Mining Ltd (ASX: NCM) to Newmont Corporation (NYSE: NEM), marking a major hurdle being crossed in what is shaping up to be one of the biggest mining acquisitions of all time. The $29.4 billion deal could set the scene for a wave of M&A in the gold mining industry.

Gold was one of the few saving graces investors had during the GFC, and the tear it continued on afterwards set off a boom in M&A across many parts of the world. 2010 saw 89 gold acquisitions with an average deal value of US$338 million for a total transaction value of over US$30 billion. While this level of activity was relatively short lived, and many miners and explorers had to hide for a few years while gold was out of favour again, the titans of the industry are back with a vengeance and are looking to lay groundwork that will set them up for decades to come.

Falling head grades are continuing to put pressure on the entire gold mining industry, with the average head grade of the world’s primary gold operations declining 7.5% from its 10-year peak in 2017 of 1.46g/t to 1.35g/t in 2021. Newer processing technologies are continuing to drive efficiency which are allowing production of lower grade mines to flourish, but there are still a few higher grade gems left to be found – and a high gold price environment is the perfect chance to discover them.

Past performance is not a reliable indicator of future performance.