Gold and Silver: The Role of Mining Supply

Gold and Silver: The Role of Mining Supply

Do metals miners hold the key to the future of gold and silver prices?

Analysis of gold and silver often focuses on demand-side factors, such as the impact of U.S. short-term interest rates and the U.S. dollar. While these are important short-term drivers, mining supply can also be an important driver of longer-term price trends.

In recent years, the mining supply for gold and silver has been on a downtrend. Gold mining supply fell 7% between 2016 and 2021. Meanwhile, the silver mining supply has fallen even more sharply, declining 8.5% during that period. Reducing new supplies may be part of why precious metals prices rose over the past five years.

Graphic: Silver Mining Production Worldwide
 

Graphic: Silver Mining Production Worldwide

Graphic: Gold Mining Production Worldwide
 

Graphic: Gold Mining Production Worldwide

There appears to be a strong inverse relationship between the annual growth rate in the total amount of precious metals supply and movements in precious metals prices. Over the past half-century, the years in which gold mining supply increased tended to coincide with declines in gold and silver prices. The same was true when the silver mining supply increased.

Get the hottest FREE crypto newsletter on the block. Sign up to TheStreet's premier newsletter COIN.

Graphic: Sensitivities to Changes in Mining Supply
 

Graphic: Sensitivities to Changes in Mining Supply

But what will happen to the mining supply in the future? It’s hard to say. On the one hand, the cost of mining gold and silver is far below the current level of prices, which should create an incentive for more investment in the sector. On the other hand, there don’t appear to be a lot of new mines coming into operation. So, if new supplies are to come, they might not arrive on the market for quite a long time and, all else equal, that could be supportive for prices.

Rate this item
(0 votes)

Gallery

Values To Instill In A Child Who "Wants To Be A Millionaire"

Despite recession fears and fueled by 'revenge spending,' Americans spend $314 a month on impulse purchases

3 Top Stocks You'll Wish You Bought on the Dip

S&P 500 earnings are rising only because of strength in this one sector

Why Apple is among this analyst’s ‘top picks’

2 Meme Stocks That Are Still Down 50% Since February 2021

No, a strong dollar doesn’t pose much of a threat to company earnings - or to stocks

The U.S. economy is not in recession — it’s growing. But for how long?

U.S. dollar is now slicing through key technical levels ‘like a hot knife in butter’

These electric vehicles qualify for $7,500 tax credit under Inflation Reduction Act

Electric vehicle tax credits: What to know before you buy

The twist no one saw coming for Bed Bath & Beyond

SEPTA may add bus service to Navy Yard to ease traffic jams

Map: These are the states with the most and least credit card debt

These EVs now qualify for tax credits under new inflation law

© 2022 Terraincome.com All Rights Reserved