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Gold and Silver: The Role of Mining Supply

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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.

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.

Read the full research article looking into gold and silver supplies

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