Miners Struggling to Produce, Which Could Mean Higher Gold Prices
Gold prices could soar immensely due to basic economics. Ignoring the precious metal at its current low price could be a big mistake.
You see, supply and demand dictate prices. If supply declines and demand remains solid, you get a higher price. This is exactly what’s happening in the gold market. It could send gold prices much higher in the coming months and quarters.
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I can’t stress this enough: Don’t pay attention to the daily fluctuations in the gold market, and don’t listen too closely to the noise that speaks against gold. Think long-term.
As it stands, gold mining companies are struggling; their production is declining.
Consider Newmont Mining Corp (NYSE:NEM). In the first quarter of 2018, this gold miner’s gold production declined by two percent year-over-year. Gold production by the company declined 9.8% quarter-over-quarter. (Source: “Newmont Announces First Quarter 2018 Results,” Newmont Mining Corp, April 26, 2018.)
And take look at Barrick Gold Corp (NYSE:ABX), one of the biggest gold mining companies in the world. Its production figures are worse. It produced 1.1 million ounces of gold in the first quarter of 2018. In the same period a year earlier, Barrick Gold produced 1.3 million ounces. (Source: “Barrick Reports First Quarter 2018 Results,” Barrick Gold Corp, April 23, 2018.)
Simple math: Gold production at Barrick Gold tumbled close to 20% in one year!
Add Goldcorp Inc. (NYSE:GG) to the list of major gold miners reporting production declines. In the first quarter of this year, Goldcorp produced 590,000 ounces of gold. In the same period a year ago, production was 655,000 ounces. So, production declined by close to 10% year-over-year. (Source: “First Quarter Report,” Goldcorp Inc., March 31, 2018.)
Also pay attention to Newcrest Mining Limited (OTCMKTS:NCMGY, ASX:NCM), a major gold producer headquartered in Melbourne, Australia. In the first quarter of 2018, its gold production declined six percent from the previous quarter. (Source: “Quarterly Report,” Newcrest Mining Limited, last accessed April 27, 2018.)
Year-over-year, production at Newcrest Mining was down close to four percent.
Why Declining Gold Production Is Important
Dear reader, over the past few years, gold miners have really struggled to produce with low gold prices. Their production costs were too high.
The mining companies mentioned above are a few of the biggest gold producers in the world. Mind you, their outlook for gold production isn’t anything stellar. Many of them expect production to decline in 2018.
If you dig deeper, smaller miners are struggling to produce as well.
I have been calling the decline in gold prices between 2013 and 2015 a blessing in disguise. Why? Because it impacted the supply side immensely. In the meantime, the demand for gold remained strong.
Central banks kept on buying, demand from India and China kept strong, and now we are seeing exchange-traded funds (ETFs) buying gold.
As I said earlier, basic economics suggests that when supply crumbles and demand stays solid, prices increase. Therefore, the production decline from gold miners could be great news for gold bugs.
Given what’s happening on the supply side, gold prices at $1,320 an ounce seem really low. The yellow precious metal could soar immensely.
