Many people have heard about the idea of 'Peak Oil', especially since it has been propagated by the mainstream media for over three decades. But how many have heard about the concept of 'Peak Gold', especially when demand for the metal is about go up several fold?
At the beginning of January a new policy and protocol began in Islamic finance that could shape the future of investing, savings, and even money for the rest of the century. And this is because 1.6 billion people, or nearly 30% of the world's population, are now able to purchase and own gold and gold products outside of jewelry for the first time in perhaps centuries.
Sharia Law is the ultimate guideline for Islamic living, similar to how the Misvot (the Law) was for the Israelites under the Mosaic Covenant. And Sharia Finance is the portion of this guideline that dictates money and investment for Muslims around the world.
And with the door now becoming wide open for followers of Sharia Law to enter into the gold markets, most financial industries, particularly in the West, are ill prepared for this.
Years of underinvestment by gold mining companies have created a looming vacuum in supply as the new Sharia Standard kicks in, says the head of one of the largest producers, Africa-focused Randgold Resources.
"A complete lack of investment in exploration means we are headed towards a supply cliff," said Mark Bristow, the chief executive of the UK-based mining firm, in reaction to the announcement of a Sharia standard for the precious metal. Randgold is the largest gold producer listed in London with a market value of about US$7.7 billion.
During the gold "supercycle" that began in 2005 and lasted until about 2011 the price rose more than three times from an average of US$513 per ounce to $1,664. Mining companies responded with a frenzy of investment, mergers and acquisitions. When the price run finally gave out many struggled to adapt and began cutting costs that included axing exploring for new gold.
"Any new addition to demand will drive up price, as we saw with the Chinese led supercycle back in 2005," Mr Bristow said. If the prediction of UK-based gold trader GoldCore that another 500 to 1,000 tonnes of the precious metal will be needed is accurate, the pressure will be on producers.
Today it takes at least five years to go from mapping a gold deposit to turning into a mine. Investors willing to risk the billions of dollars it can cost need to be found, and they must be prepared to wait years before seeing a return. Moreover, most new mines are being built or planned in remote locations.
To feed the continuing need for cash, mining companies frequently issue shares. This dilutes the stock and causes wild fluctuations in share prices. This turns them into a speculatively traded stock rather than a long-term investment, something that Sharia investment forbids.
Developing countries are where most of the new investment in mining capacity will go should a renewed interest in new mining ventures result from increased gold demand from Sharia investors. - The National.AE