"The combination of very low concentrations of metals in the Earth’s crust, and very few high-quality deposits, means some things are truly scarce." He wrote in the report.
King notes that the intention behind the report was to highlight the areas of scarcity, and demonstrate how scarcity is the ultimate driver of value and investment.
"Perhaps unsurprisingly, these are the so-called precious metals (and diamonds), and that their value is derived from the fact they are rare." He writes, "Gold has been used as a measure of wealth for more than 4,000 years, as the ancient Egyptians soon worked out that gold was not only shiny and heavy, but rare."
He adds that the relative scarcity of the commodity, and "the market’s belief that new discoveries will be limited, is what drives the price of these super-rare commodities."
King’s report falls in line with the forecast made last year, estimating that 2015 will be the year when gold production would reach its peak in the mining industry, a concept known as Peak Gold.
Mineral discoveries are a function of geology, technology and price. Shale oil was known about for over a century but was completely uneconomic until technology improved and that changed the pricing structure of the gas, and later the oil markets, beyond recognition.
Technology tends to improve during the downswing of a cycle as producers are forced to economise and only the strongest and/or smartest survive. Reef boring technology was developed during the bull market for gold as South African mines tried to deal with their declining grades even in a rising price environment. Deep sea mining operations are likely going to require much higher prices to justify the cost and environmental considerations of mining in such inclement areas. Two thirds of the globe is covered in water so there is still plenty of gold to be found but it will be at a higher cost.
The gold price exhibits a saucering pattern consistent with accumulation over the last five years and a sustained move below $1300 would be required to question medium-term scope for additional upside.