The price gold and silver are ultimately sold for per ounce can be affected by a number of factors — including the available supply of the metals, according to Kevin DeMeritt, founder and chairman of precious metals firm Lear Capital.
With developing nations increasingly welcoming investments from foreign entities, global gold mine production grew 55% between 1995 and 2018. Yet due to aspects such as availability issues and increased delivery costs during the COVID-19 pandemic, gold production declined by 4% in 2020, according to the London Bullion Market Association.
By mid-August 2020, gold prices had increased 28%, McKinsey & Co. research shows.
“If you add an increase in demand onto that physical supply that’s fairly limited, usually, what you’re going to find is prices go up,” DeMeritt says. “It’s economics 101.”
Production and Reserve Issues
According to the U.S. Geological Survey, as of 2024, approximately 244,000 metric tons of gold have been found around the world; 187,000 tons have been extracted — primarily from China, Australia and South Africa — and 57,000 metric tons remain underground.
Since, as the World Gold Council says, gold is essentially indestructible, a sizable portion of what’s in circulation can potentially be reused. Yet some — such as what the gold central banks buy — may not be readily available.
“China continues to buy; Russia, India [continue] to buy; and not at small levels,” DeMeritt says. “Those countries are not day traders. They buy [and] hold [it] for 10, 15, 20 years.”
While opening new mines may seem like an easy way to increase the available supply of the precious metal, establishing a new mining operation can be a multifaceted and timely endeavor.
Geological, engineering and other resources are needed to identify the size of a mineral deposit and determine the best way to extract ore from it. Getting a mine up and running can often take between 10 and 20 years, according to the World Gold Council.
Only about 10% of the global gold deposits that are investigated end up having enough of the precious metal to make excavation efforts worthwhile; less than 0.1% of potential sites that are examined actually become functioning mines.
Gold deposits are becoming harder to find, according to a June 2024 CNBC article, and the gold mining industry is having a hard time maintaining gold production growth.
“You can only pull so much gold out of the ground,” Kevin DeMeritt says. “Even with new technology, we’re having to go deeper and deeper inside the Earth to go get it.”
If a potential site is determined to be viable, setting up a mining operation can take time. Permits and licenses often have to be acquired, and infrastructure planning and construction needs to take place. Once extraction efforts begin, rock and ore are processed to become doré, a metallic alloy that typically contains from 60% to 90% gold, the World Gold Council says.
Companies may need to periodically review and shift their removal approach. Low-grade ore, for example, might be more profitable to mine when gold prices are high, because that can offset the cost involved in milling larger volumes, according to the World Gold Council.
“You need to look at the grade of ore,” DeMeritt says. “[Is] it a tier one, the highest grade? Each ton of earth you’re pulling up, how many ounces of silver or gold are you really getting?”
The country where a mine is located also may charge fees, cutting into a mining company’s profitability.
“The governments are always trying to get some extra money — shut things down, tax them differently,” DeMeritt says. “They can get halfway through a mine, and [the government could] want more money.”
Jurisdictional risk can also be a concern.
“If you read about the mining companies out there, especially the larger ones, you’ll inevitably find a few jurisdictions where the mine just shut down,” DeMeritt says. “The workers went on strike, or the government came in — or a variety of things can happen that make mining very uncertain.”
Why Silver Can Be Challenging To Produce
Driven in part by increased industrial use, the demand for silver increased in the second half of the 20th century, according to Lear Capital. The industrial applications for silver reached a record high in both 2022 and 2023, according to the Silver Institute, causing the demand for the precious metal to be considerable in recent years.
Recycling, though, isn’t always an option. Reusing the silver that’s in solar panels, for instance, can be difficult, Kevin DeMeritt says.
“They’re taking the silver, turning it into a paste and mixing it with other things,” he says. “The price of silver, to make it viable for them to tear [panels] apart, pull the paste out and extract the silver, [would need to be] over $100 an ounce.”
Because silver is often produced as a byproduct when mining other substances, creating new mines that specifically focus on producing silver can incur a notable expense, the Lear Capital founder says.
“From a supply side, not a lot of silver in the world is mined all by itself,” he says. “So if you need more silver, we’ve got to figure out how to get more out of the ground. [The cost for a new mine] might be higher — you need the silver market to go up to be able to increase the supply.”
Despite a 5% bump in production in 2021 — the biggest annual supply increase since 2013 — amid mine labor strikes and other production issues, the silver market experienced a deficit of 237.7 million ounces in 2022.
In 2023, a 184.3 million ounce shortage occurred when mining operations faced obstacles such as political protests in Peru. As of November 2024, the deficit for the year was expected to reach 182.2 million ounces. Lear Capital’s silver spot price chart shows the metal’s price had risen in November 2024 from the start of the year.
Due to the cost involved in production-related aspects such as increased silver mining, DeMeritt anticipates silver market shortages will continue to escalate in the future — which, as with gold, could spur an increase in the precious metal’s price.
“Two hundred million ounces is a lot of ounces of silver to try to make up; and it continues to get worse,” he says. “In the next couple of years, I would not be surprised if we had a 300 million- [to] 350 million-ounce deficit.”
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