Global Gold Mine Production Facing Headwinds, Could Be Great for Gold Prices
When it comes to the gold market, don’t just look at demand; it’s important to consider supply as well. And as it stands, supply indicates that gold prices could really soar.
Right now, there’s a massive disparity in the gold market. Demand for the yellow precious metal remains strong, but the supply side is struggling. This could mean soaring gold prices.
Here’s what you should know.
What’s the Status of Gold?
Global mine production is facing a lot of headwinds.
For example, in 2018, U.S. gold mines produced 211,000 kilograms (211 tonnes). A year earlier, gold production was 237,000 kilograms (237 tonnes). This represents a year-over-year decline of close to 11%. (Source: “Gold In December 2018,” U.S. Geological Survey, last accessed March 28, 2019.)
Mind you, the U.S. is one of the biggest gold-producing countries in the world.
That is to say nothing about global gold production, where things look dire.
Remember, don’t focus on monthly data: look at the long-term.
Over the past few years, the growth rate in gold mine production has been slowing down at an alarming pace.
Consider this: in 2009, global gold mine production grew 7.51%. But in 2018, global mine production grew just 0.84%. That means the gold production growth rate has stalled close to 90% over nine years. (Source: “Gold Demand Trends Full year and Q4 2018,” World Gold Council, January 31, 2019.)
Where’s Gold Production Headed in 2019 and Beyond?
Looking forward, the gold supply is headed for a lot of trouble. It wouldn’t be surprising if 2019 is the first year when global gold mine production declines.
Why? Because mining companies around the world haven’t spent money on exploration. In fact, they have seriously lagged. After all, exploration is an investment in future production.
As gold prices were declining between 2013 and 2015, miners disregarded exploration and focused on remaining afloat.
What’s also interesting is that the mining companies are doing something that’s not really helping supply: mergers and acquisitions.
For example, not too long ago, Barrick Gold Corp (NYSE:GOLD) merged with Randgold Resources, while Newmont Mining Corp (NYSE:NEM) purchased Goldcorp Inc. And there’s a lot of noise in the sector that more moves like these could be ahead.
Here’s the issue: larger/giant companies are simply taking over relatively smaller miners.
From a business perspective, it makes sense. It’s a great move for Barrick Gold to buy Randgold. The company gets Randgold’s production, reserves, and resources. It’s just a transfer, but no real exploration was done.
Is Gold Supply in Trouble?
In the coming years, I am convinced that there will be some sort of shortage in the gold market. We could see a scenario play out where there’s a lot of gold available on paper, but it’s difficult to get the bullion itself.
When that happens, gold prices could skyrocket very quickly.
I see 2019 to be a great year for the yellow precious metal. Current supply is certainly making a strong case for it.