Gold demand could be hard to meet in the future
A large part of gold’s appeal lies in it being a finite resource and, as such, free from central bank manipulation. However, gold’s scarcity could soon become an issue – paving the way for record highs as miners find themselves unable to produce enough gold to meet global demand.
According to an article by the Economic Times, mining industry insiders and some market watchers have already voiced their concerns in regards to the available supply of gold. After price dips in recent years, miners were forced to cut back on production costs, which involved both reducing the number of active mining projects and severely limiting the exploration of new ore.
Now, with renewed interest in the yellow metal and with gold prices breaching key levels, supply could struggle to meet demand, leading to a further spike in prices. According to Danielle Bochove, author of the article, because mining projects take a long time to put into motion, miners won’t be able to adjust their production in accordance with market fluctuations. Randall Oliphant, chairman of the World Gold Council, is among those who believe that a supply glut will lead to significantly higher prices.
Talking at the 28th annual Denver Gold Forum, Oliphant said that gold could hit $1,400 an ounce in the next 12 months. He listed political risks in the U.S. as yet another driver behind heightened demand.
“It’s not clear how the whole U.S. political system will play out,” said Oliphant, via Economic Times. “All this uncertainty seems very fertile ground for people to get into gold.”
Production will fall even sooner as global political risks cause more people to turn to gold, with demand also supported by robust purchases from India and China, said the chairman.
The article notes that other attendees at the conference, which attracted 1,100 people this year, echoed Oliphant’s statements. David Harquail, chief executive officer of Franco-Nevada Corp., painted a concerning picture of the current state of the mining industry, saying that miners are merely using new projects to replace old assets as opposed to actual expansion.
Oliphant doesn’t see supply running out in the near future, but says it could happen sooner than people think writes Bochove. When newly-produced gold becomes scarce, a scenario Oliphant places in the medium term, gold will be in a prime position to pass its all-time high of $1,923 an ounce.
“We’re not going to fall off a cliff in the near term, but in the same time it’s really hard to see how we’re going to produce enough gold to meet all this demand,” he said.