Is There a Global Shortage of Gold?
As the interest in gold and gold backed IRA accounts as an investment vehicle continues to rise, an automatic question that’s starting to surface relates to supply and demand.
Specifically, is there actually a gold shortage? And if not, is there one on the horizon?
While this question might seem somewhat panic-driven, it’s actually a fair question given the recent disruptions in the supply chain. Many companies across the board have had their operations hindered or even shut down, and the companies that mine gold certainly aren’t immune to this risk.
So let’s look at some of the specific supply issues related to gold, including some of the terminology, how supply is evaluated, and so on, and see if we can dig up an answer to this intriguing question.
One of the most basic but essential concepts used to measure the overall gold supply is the idea of peak gold.
Sounds complicated, but it’s actually fairly simple. When experts look at the numbers for signs of peak gold, they’re really looking at the annual mining totals to see if they’re finally starting to decline.
Some believe that actually happened in 2019, although there is a bit of a red herring contained within the numbers. Overall gold mine production hit just over 3500 tons that year, which was one percent lower than the total the year before.
The fly in the ointment is that this decline phenomenon already happened once before, and fairly recently at that, back in 2008. After that the numbers slowly rebounded and growth resumed, which in turn led to less of a “doom and gloom” forecast in the world gold supply.
Most of those same experts now believe that the gold supply has flat-lined. There may be a decline in production, but it will occur gradually over a course of several decades, which of course is still good news for investing in gold based on its long-term value.
Now let’s look more closely at the human element of mining, i.e., how mining companies estimate the amount of gold that’s remaining in the ground.
To do this, they divide the remaining gold they’re assessing into two categories, gold reserves and gold forecasts.
Gold reserves simply represent the amount of gold that can be mined economically at something close to the current price level.
Gold resources, meanwhile, represent the gold that could be economical to mine after a deeper investigation of what’s involved, or the gold that could be mined at a higher price level.
That system yields some intriguing numbers. According to the US Geological Survey, the stock of gold reserves can be estimated at around 50K tons, with 190K tones already mined.
That means 20 percent of the overall gold supply can still be readily mined, but as the numbers from around 2008 indicate, this number can be a bit of a moving target.
As for gold resources, some interesting phenomena are at work there, too. One is the growth of new technologies that could increase the level of gold resources, and these include things like smart mining, AI and big data.
Robotics, for instance, is already being used in some mining applications, and as these new technologies develop there could be more gold found that could actually be mined more economically.
The Geography of the Gold Supply
So where exactly is all that gold, anyway?
South Africa, mostly, for starters. The best example here is the Witwatersrand Basin in South Africa, which remains the source of approximately 30 percent of all the gold that’s ever been mined.
Australia gets a prominent seat at the gold geography table, too. Major sources include the Newmont Boddington Mines and the Super Pit mine, and Indonesia and the US get honorable mention as well with the Grasberg mine and the Nevada mines in America, respectively.
As for the countries that dig the gold out, those would be China and Russia at the top of the list, with Canada as a major player along with Peru.
Geography aside, one of the realities of mining is that it’s definitely getting more expensive, at least without the aforementioned new technology.
Large-scale mining is costly because it takes a lot of capital, and you need plenty of machines and expertise to get to the vast areas on or beneath the surface. Even the Chinese mines, which are smaller, have higher costs, mostly due to the lower overall yield.
So is there really a gold shortage?
Depends on how you look at it. Short term, no, unless an economic catastrophe completely cripples the mining companies.
Medium-term? Yes, sort of, if you define medium-term as several decades.
Long term? Yes, most likely. Gold is a finite resource, after all, and even the best technology won’t exponentially change the numbers when it comes to the overall amount that’s available. A steady decline over decades would produce the threat of a genuine shortage, but at the moment it’s a long way off.