How to Knock Out a Living in 2020: Commodities Boom Just Starting
This morning I sit in McDonald’s, the American fast-food chain that has taken over the world, for better or worse. Drinking coffee made with beans from Brazil…
I’m waiting for my Japanese-made car to be serviced…while working on a laptop assembled in Taiwan…which runs on processing chips designed in Israel.
The leather planner that sits next to me uses cowhide produced in either India or China, yet it was assembled in Vietnam.
There is nothing unique about this.
This is how we knock out a living in a globalised economy.
Yet it was one crucial discovery that kick-started Australia’s transformation from penal colony to modern economy…
From colony to modern economy
I’m currently enjoying the benefits of globalisation (and, arguably, rampant credit growth fuelling the illusion of wealth — but that’s an after Christmas topic).
Yet, all of this economic fortune I enjoy today, comes from one tiny moment in history.
When Edward Hargraves found gold in May 1851, out near a site called Ophir, near Orange, New South Wales.
That one find triggered the Australian gold rush of the next two decades.
It ultimately ended us being used as a British prison.
Furthermore, the influx of migrants to the muddy banks out in the Victorian goldfields is said to be the birth of our unique slang.
Many of the sayings we use today like ‘knock out a living’, were all born on the muddy banks of the Victorian goldfields.
Even after the gold rush had ended in Victoria and New South Wales…
And even as both states plunged into a housing bust in the 1890s…
…gold was found over in Western Australia…
…and once again our economic fortunes were saved.
As we are mere days away from a new decade, will gold save us once again?
Before the boom
There are days when I reckon Australia is just a fancy quarry.
Afterall, the majority of this century’s prosperity has come from selling everything we’ve got underground to China.
And with all this money flowing into Oz, we’ve spent it on buying houses from each other backed up by enormous bank loans.
Although we might not have China’s insatiable appetite for raw materials in this new decade.
So where does that leave us?
And in spite of the coronavirus disrupting the global economy, Chinese stimulus has increased the demand for iron ore to even higher levels.
However, Australia’s commodities boom may just be getting started…
…and once again Aussies will owe their future economic fortunes to a second gold rush.
According to a recent report last year from the Department of Industry, Innovation and Science, gold is on track to beat both thermal and coking coal exports by dollar value next year.
And it’s not just a once off.
The report says that this will be a major trend going into the 2020s.
And by the mid-2020s, Australia will be the world’s largest gold producer.
To boot, the higher gold prices are driving more money into the sector.
That same report reckons that investment in the mining sector may jump 15% into next year.
It’s who you know
The estimated increase in investment spending from mining companies doesn’t surprise me.
It’s a trend I’ve been tracking for two years.
But much of the number from the Department of Industry, Innovation and Science report doesn’t factor in the gold yet to be found.
I first started talking about an exploration boom back in July last year.
And going into 2021, two of the biggest trends will be more mining mergers and more exploration.
It doesn’t matter who I speak to, whether it was a mining boss, geologist, investment analyst or some over-worked PR rep, everyone is telling the same story.
Money for exploration has been almost non-existent and as a result confirmed resources are falling.
That is, the lack of money spent on exploration means future consumption of minerals is on the edge.
Big mining companies have seen their ore reserves fall because they haven’t been actively looking for more.
Falling reserves have been a contributing driver of all this merger activity as well.
Why is that?
They’re burning through their gold reserves without really knowing how they’re going to replace them…
Because as many, many experts have told me for some time now, global underspending on exploration has left the supply of gold — and many other resources — in doubt.
Aussie’s ready yourself. There’s going to be some incredible investment opportunities next year…
Editor, The Daily Reckoning Australia
PS: This is an updated version of an article that was originally published in The Daily Reckoning Australia on 19 December 2019.