U.S. Money Reserve Clarifies What Factors Are Affecting Mining and the Gold Supply

As U.S. Money Reserve's price charts show, gold's price has risen fairly steadily in recent years and has reached a number of record levels in 2024, including crossing the $2,700 per ounce mark for the first time on October 18, 2024.

However, even with the considerable demand for the precious metal, efforts to mine gold haven't grown significantly, says U.S. Money Reserve President Philip N. Diehl, who previously served as the 35th Director of the U.S. Mint.

“You would expect, with prices being so high, that gold miners would be ramping up production to increase their profits — and that gold mine production would be substantially higher today than in 2011,” Diehl says. “But mine production hasn't increased. In fact, it's barely budged over that period of time, despite the much higher prices the miners receive for gold.”

The Current Mining Climate

The existence of operational challenges for mining companies — including having to locate new veins of gold — is one reason production hasn't soared, according to Diehl.

“Gold is getting harder to find and more expensive to mine,” Diehl says, “so mine production is not keeping up with demand.”

A decade or two ago, most gold came from nations that were politically and economically stable, and friendly to the United States, providing a more reliable supply, Diehl reports.

“All that has changed,” Diehl says. “Now, gold is much more often mined in countries that are unfriendly to us — China and Russia being two of them — or countries that are politically and economically unstable.”

Mining companies, he also explains, must include higher premiums in their pricing to ensure their profitability. Having to contend with corruption can also compound costs and delay production.

“Corruption increases the political instability and uncertainty mining companies deal with,” Diehl says.

Some developing economies are also now proposing more stringent regulations for mining companies excavating precious metals in their regions.

“[These nations are negotiating much tougher deals for mining rights — and often demand an ownership stake in the mining companies and the mines,” says Diehl. “This is not just true of gold; it's across the board in mining.”

Local Considerations

Other factors contribute to the higher cost and lead time gold mining companies face today.

For example, some governments, or domestic civic action groups seeking to influence their respective governments, have moved aggressively to reduce the externalities of mining operations, including environmental destruction and labor practices.

“These civic commitments invariably raise mining costs and the price of gold in these countries,” Diehl says. “They constrain supply, as well.”

As gold prices continue to climb, he anticipates that ownership challenges, regulation-related delays, and other mining cost trends we've seen in recent decades will accelerate.

“These forces on the cost side will be reinforced by demand factors that are relentlessly driving prices upward,” Diehl says. “Demand forces such as spreading geopolitical conflicts and rising central bank gold-purchasing will sustain the appreciation opportunity for clients who own gold.”