Since the beginning of the industrial era of gold production at around 1850, 148,000 tons of gold were produced. Estimates of the historic cumulative production ranges from 157,000 tons [1] to 180,000 tons [2]. Thus, between 82% and 94% of the historic production was mined within the last 160 years. South Africa alone contributed with approximately 50,000 tons about one third of the global production. However, reasonably well documented global production figures only date back to the end of the 15th century [3]. The U.S. Geological Survey estimates that 85% of all historically produced gold is still available for recycling [1], i.e. between 133,000 and 153,000 tons.

Laherre introduced 1997 the cyclical modeling for the oil production and called it ‘Multi-Hubbert-Modeling’ [4]. Here we apply this principle also to global gold production. When plotting the annual gold production since 1850 (Fig. 1), an overall approximately exponential increase is noted and four sub-cyles can be recognized [5]. Each sub-cycle led to a considerably higher level of production.

The geologic discoveries around 1850 brought up the production to a level of approximately 170 metric tons per year (t/yr). With the discoveries of the rich goldfields in the Witwatersrand Basin (South Africa) and in Western Australia at the end of the 19th century, the first sub-cycle started and lifted up production to a new level of 700 t in 1912. The World War I and the subsequent economic crisis disrupted this sub-cycle.

A second sub-cycle can be identified between 1930 and 1945, which brought the production in the peak to a level of 1,300 tons (Fig. 1). The trigger for this Sub-cycle II ironically was the Great Depression from 1929 onwards, when many unemployed men went to the gold fields in order to make a living [6]. Gold standard or not: gold was and still is nothing else than money. The depreciation of the US- dollar against gold from 20,67 US$ to 35 US$ per ounce due to the ‘Gold Reserve Act’ of president Roosewelt on 31th of January 1934 clearly stimulated further production. Again, this sub-cycle was brought to an end by World War II and the subsequent economic crisis.

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Imagine, if, only if the US is slowly entering the Japan style Deflation Economy. Presented without comment.

Are we writing code we can’t understand, with implications we can’t control?

What about the “risk free” investing in “risk free” countries like the US and Japan? The ever increasing debt in the World, is approaching rather ridiculous levels. Or what about Japan’s +200% level of Debt. With the Economy having officially entered the ” new normal”, that Debt is not at sustainable levels, and won’t be repaid, ever.

Twenty thousand people lived in Pompeii , beneath the shadow of a quietly smoking Mount Vesuvius, while another 5,000 lived nearby in the opulent city of Herculaneum – a favourite summer retreat for rich Romans and home to decadence, gambling and prostitution.

On August 24, 79, Vesuvius suddenly erupted, spewing a 10-mile cloud of ash and pumice into the skies above Pompeii and Herculaneum . The deluge that rained down upon the cities continued for eighteen hours and the surging lava flows that cascaded down the slopes of the volcano buried both under almost fifty feet of debris, killing an estimated 2,000 people who had stayed, hidden in their cellars, waiting for the onslaught to subside.

We know all this mostly from the writings of Pliny The Younger, a 17 year-old who would go on to become a celebrated writer (and presumably, in due course, Pliny The Elder), but who spent the days around the eruption of Vesuvius writing a detailed account of the events. Without his writings, we may never have known what happened that day.

Clearly, the inhabitants of Vesuvius were aware of the potential disaster that loomed above them, but they looked at that danger every day and then calmly went about their business. Eventually, living in the shadow of potential catastrophe became normal. It no longer mattered to anyone – until the day it mattered to EVERYONE.

This past Wednesday morning, whilst going through the overnight headlines and trying to make sense of a 3.5% rally in the S&P – which, if one were to listen to commentary, would seem to have been completely predicated upon the strengthening belief that Ben Bernanke was going to administer another shot of Hopium on Friday at the annual Jackson Hole Shrimpfest (™ Bill Fleckenstein) – I was struck by a scrolling headline on my Bloomberg terminal that was clocked at 7:04am (Singapore time). It simply read:

“Moody’s Lowers Japan ’s Government Rating To Aa3; Outlook Stable”

Reflexively I checked the intraday movement of the Yen and the chart, below left, is what I saw.

Another downgrade for Japan – the country with the largest debt burden in the world at over 200% of GDP – and within the space of an hour, the currency was back to where it stood prior to the announcement from Moody’s. It didn’t matter to anyone.

According to OECD projections, Japan’s public debt will reach 219% of GDP next year (a figure that DOESN’T include the cost of rebuilding after the Sendai quake) as the country that has racked up an astonishing 950 trillion yen in debt over the last twenty years continues down the Keynesian path to prosperity, and yet, the Yen is seen as a ‘safe haven’. Frankly, the use of the word ‘Yen’ within the same paragraph as the phrase ‘safe haven’, let alone the same sentence, fills me with equal parts wonder and equal parts dread, but such is the world we live in now; a world in which the currency of a country whose economy has been melting down for two decades is considered a more worthy home for capital than those other currency powerhouses, the dollar and the Euro.

Full must read Hmm report, Hmmm August 26 2011.