Potential for Tighter Gold Supply in 2019 Should Lead to Rising Gold PricesAdam Gardiner
Those familiar with gold markets know that it’s becoming increasingly difficult and expensive to mine gold. Output of gold from mines is expressed in grams per tonne, with the highest-grade underground mines producing 15 to 21 grams of gold per tonne of rock mined, while open-pit mines only produce 4.5-7.5 grams of gold per tonne.
Think about that for a second. For every tonne (2,204.6 pounds/1000 kg) of rock that has to be mined, crushed, processed, etc., a gold mining company gets between 1/7 and 2/3 of an ounce of gold. So in order to mine a million dollars worth of gold they would have to process anywhere from 1000 to 5000 tonnes of rock. And that just gets you revenue. Calculate the amount of manpower, trucks, electricity, gas, etc. that goes into that and you can imagine how expensive it is to mine gold and how difficult it can be to make a profit.
That’s one reason gold is set to go through the roof, because mining companies are having difficulty finding new mines that are profitable enough to mine for new gold, so production will decrease. Then you have former major producers like South Africa whose production continues to fall due to a combination of factors. Once the world’s largest gold producer, South Africa is now number seven, and its production in December fell 31 percent year-on-year.
Add in the fact that number three producer Russia continually faces the threat of sanctions and top producer China keeps most of its production within the country and you have a recipe for a real worldwide supply crunch, with over 20 percent of world supply off limits to the West.
While that wouldn’t make industrial users of gold very happy, investors in gold would be thrilled. With supply tightening and demand increasing, there’s a very real potential for a significant spike in gold’s price this year. But in order to take advantage of that, investors actually have to take the right steps to invest in gold before that spike. Millions of investors from 2008-2009 saw stocks fall and gold rise and wished that they had traded their stocks for gold. Don’t let that happen to you the next time around.