Supply Side Making a Strong Case for Higher Gold Prices
Gold prices look really attractive. The yellow precious metal could be one of the most undervalued assets out there these days.
Just look at gold from a basic demand-and-supply perspective. It’s selling at dirt-cheap prices.
As it stands, the gold market could be running into a lot of supply constraints.
Not too long ago, we discussed low production in the U.S. and Australia and how that could be great for gold prices. Now, something similar is happening across the globe. We are seeing production tumble in major gold-producing regions.
South African Gold Production Tumbling 60% Below Average
Look at South Africa, for example. It’s the seventh-biggest gold-producing country in the world.
In South Africa, gold production is tumbling. The data tells us that there could be a crisis-like scenario playing out in the South African gold mining sector.
Look at the table below. It shows the year-over-year change in the monthly gold mine production in the country.
| Month | Year-Over-Year % Change |
| February 2018 | -5.0% |
| March 2018 | -15.3% |
| April 2018 | -5.8% |
| May 2018 | -14.3% |
| June 2018 | -17.3% |
| July 2018 | -15.0% |
(Source: “July 2018, Mining: Production and sales (Preliminary),” Stats SA, September 13, 2018.)
Looking at the data for the first few months of 2018, it won’t be shocking to see South Africa report dismal production numbers for the entire year.
In 2017, gold production from the country amounted to 145,000 kilograms. (Source: “South Africa Gold Production,” CEIC, last accessed October 5, 2018.)
It could be much lower this year.
From a historical perspective, between 1990 and 2017, gold production in South Africa averaged 355,261.5 kilograms. If we assume that the country produces something similar to what it did in 2017, it would still be 60% below the historical average.
Indonesia’s Gold Production Facing Headwinds
Beyond South Africa, look at Indonesia. It is the sixth-biggest gold-producing country in the world.
In 2017, Indonesia’s gold production amounted to 80,000 kilograms.
The average annual gold production in the country between 1990 and 2017 was 85,245.50 kilograms. (Source: “Indonesia Gold Production,” CEIC, last accessed October 5, 2018.)
So, Indonesia’s gold production is running six percent below the long-term average.
In 2001, the country produced a record 166,091.00 kilograms of gold. From that high, gold production has dropped over 51%.
World’s Biggest Gold Producer Reported 3% Decline in Gold Production in 2017
Look at China, too. Keep in mind, China is the biggest gold-producing country in the world. We see that production is slowly diminishing there as well.
In 2017, the country produced 440,000 kilograms of gold. In 2016, this figure was 453,000 kilograms. Simple math; gold production declined close to three percent year-over-year. (Source: “China Gold Production,” CEIC, last accessed October 5, 2018.)
This Is How Gold Prices Could Surge Overnight
Dear reader, don’t forget that we are seeing production decline across the board as exploration spending has dried up.
In the simplest words possible, the supply side of the gold market could be headed for a lot of trouble in the coming years and quarters.
Right now, the fundamentals don’t really matter to investors.
But, let me tell you this: If we see an event like a financial crisis or stock market crash, investors could be rushing to buy gold. When that happens, they may find that there isn’t enough gold out there. This could send gold prices surging overnight.