Gold Miners Could Be the Catalyst Behind Higher Gold Prices
Each day, there’s growing evidence suggesting that the gold market could witness a supply shock. If this happens, it could send gold prices soaring immensely.
How could there be a supply shock in the gold market? We currently see solid demand, but the supply side is severely struggling. The longer this situation persists, the bigger the problems will get, and there could eventually be a massive upside for gold.
To get some idea about the demand side of the gold market, read here.
On the supply side, we see miners struggling to produce more. This is not an opinion; it’s a fact. We are seeing all this show up in the data.
Major Gold Miners Reporting Massive Production Declines
Consider Barrick Gold Corp (NYSE:ABX), a well-known and major gold producer with global operations.
In the first quarter of 2018, the company produced 1.049 million ounces of gold. In the same period a year ago, it produced 1.309 million. That means, year-over-year, Barrick Gold Corp’s production dropped by close to 20%. (Source: “Q1 2018 Mine Stats,” Barrick Gold Corp, last accessed July 24, 2018.)
This is not a one-time thing. Not too long ago, Barrick Gold reported production for the second quarter of 2018, which was 1.07 million ounces. But in the second quarter of 2017, the company had produced 1.43 million ounces of gold. That was a 25% decline year-over-year. (Source: “Q2 2017 Mine Statistics,” Barrick Gold Corporation, last accessed July 24, 2018.)
But Barrick Gold Corp isn’t the only gold company reporting lower production. This phenomenon prevails across the gold mining sector.
Pick a major gold miner, and it’s very likely they are reporting lower gold production. For example, Newmont Mining Corp (NYSE:NEM), Goldcorp Inc. (NYSE:GG), Newcrest Mining Limited (ASX:NCM), and Kinross Gold Corporation (NYSE:KGC) have all reported lower production.
Looking at the regional bases, we see dismal gold production figures too. In the first five months of 2018, gold mine output in the U.S. was 86,400 kilograms. In the same period a year ago, this figure was 98,300 kilograms. This was a year-over-year decline of over 12%. (Source: “Gold In May 2018,” U.S. Geological Survey, last accessed July 24, 2018.)
Other producing regions are reporting dismal production figures as well.
What’s Ahead for Gold Prices?
You see, as gold was being sold off between 2013 and 2015, miners reached for the low-hanging fruit. They went for the highest gold grades in the ground and cut back immensely on exploration.
If miners didn’t do this, they would get hurt badly. Some wouldn’t even be able to survive. And now, everything is catching up to them.
As I see it, the mining sector is already significantly behind when it comes to exploration. Mind you, exploration is an investment in future production, so it wouldn’t be shocking if production declines further in the next few quarters or so.
With all this in mind, let me ask this: “What will happen to gold prices should we see an event that causes investors to seek the safety of gold?”
It could be anything: soaring inflation, a dismal U.S. economy, a weak U.S. dollar, a stock market crash, tumbling bond prices, war, volatility in currencies, and so on.
We could have a shortage of gold in no time. The market could react to it very quickly and send the price of gold soaring in no time.