The Production of Gold
For lack of a better term, the “production” of bullion is a function of exploration, mining, and refinement. Due to its minuscule presence of 5 parts per billion (ppb) in the earth’s crust, gold’s discovery is improbable, and scarcity is all but guaranteed. According to the U.S. Geological Survey (USGS), only around 244,000 metric tons have been discovered over the course of recorded human history. 187,000 metric tons have been harvested, and 57,000 metric tons remain in the ground as known reserves. In total, all of the gold in the world could be molded into a square cube 28 meters on each side.
Because of gold’s rarity and physical utility, humans value it highly. It’s coveted as physical and financial assets, serving a wide variety of purposes. As a result, gold production is a key element of many national economies around the world. As of year end 2017, these 10 nations are the world’s leading gold producers:
| Country | Metric Tons (Annual, 2017) |
|---|---|
| China | 426.0 |
| Australia | 295.1 |
| Russia | 270.7 |
| United States | 230.0 |
| Canada | 175.8 |
| Peru | 162.3 |
| Indonesia | 154.3 |
| South Africa | 139.9 |
| Mexico | 130.5 |
| Ghana | 101.7 |
Mining industry experts are torn on which way short-term trends in global production will go. However, almost all agree that the long-term view toward bullion is increasing scarcity. In fact, many of the world’s most prominent gold mines are already showing signs of fatigue. Australia’s Super Pit and Nevada’s Carlin Trend are two mega-producers projected to exhaust reserves in the coming decades.
The Supply Chain Is Not All There Is to Market Price
Any study of gold’s historical market price is a fascinating look at human psychology. For the typical consumer, gold is acquired as a component of a manufactured good, such as jewelry or decoration. Conversely, investors view bullion as a financial safe haven and a hedge against the unknown. In both cases, gold’s inherent scarcity locks in a convertible value.
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Given constant demand, disruptions to the supply chain can drive gold prices significantly higher. As most industry experts will attest to, fading future production is likely to drive long-term bullish pressure toward the pricing of gold. But, is supply the be-all-end-all to market price? Not exactly. Here are a few factors independent of the supply chain that can influence the price of bullion on both the spot and futures markets:
- Civil unrest: In times of war, terrorism, or civil unrest, the value of gold has historically spiked unless restricted. In the immediate aftermath of 2001’s World Trade Center attacks, December gold futures spiked $6.30 per ounce before being frozen at $280.
- Economic uncertainty: Gold becomes especially popular during times of currency devaluation or asset pricing instabilities. During the global financial crisis of 2008-12, gold reached an all-time high value of $1,917.90 in August 2011.
In addition to these factors, institutional acquisitions can also have an impact on bullion’s value. Concerted stockpiling of gold by central banks, governments, and hedge funds can greatly influence short-term pricing volatility.
Understanding Global Gold
Unless you’re already a precious metals expert, there’s a lot to know regarding the global gold trade. From macroeconomic cycles to regional conflicts, many factors are capable of swaying the value of bullion.
Fortunately for active traders, the gold futures markets furnish participants with many advantages over other modes of investment. For more information on how gold can augment your financial plan, schedule a no-strings conversation with a precious metals pro at StoneX today.