Mining is a crucial source of gold currently available on the market, according to U.S. Money Reserve President Philip N. Diehl.
However, because the precious metal has been a coveted resource for thousands of years, finding and excavating it has become an increasingly challenging task.
“The easy-to-mine gold — the high-quality veins — have been found all over the world,” says Diehl, who served as the 35th Director of the U.S. Mint. “That gold is largely out of the ground. On the supply side, the big factor is just how much more difficult it is to find gold and then to mine it.”
As a result, mining companies may have to address a number of factors when trying to produce new gold, silver, and other precious metals — including some of the following considerations.
Regional Conflicts
Because a significant percentage of available precious metals are found in only a handful of countries, reduced production in even one of these locations can have a notable effect on these assets’ global availability.
In 2022, for example, reduced output from Peru and China — partly because of social unrest and mining interruptions — collectively helped drive the global deficit of silver to a record 253 million ounces, according to the Silver Institute.
The nonpartisan Council on Foreign Relations reports[1] that Peru experienced further political instability in 2023, including political protests, which hindered silver mining.
Similarly, prices for Russian gold and other metals exports declined by more than 35% in the initial months after Russia invaded Ukraine in 2022, according to an S&P Global Market Intelligence report. This drop is especially notable given that global spot prices for gold spiked immediately following the invasion.
In November 2023, the U.S. Department of Commerce’s International Trade Administration said investment in mining operations in Mexico, the world’s largest producer of silver, was expected to slow down because of mining reform legislation recently passed by the country’s government. The Administration says the new laws — which include financial, ecological, and administrative obligations for mining companies, as well as changes to the way land contracts are granted and contracts’ length — may affect both companies’ operations and investor interest Mexico’s mining industry.
Mary Ng, Canada’s trade minister, expressed concerns about the proposed reforms to Mexico’s secretary of economy in April 2023, shortly before the reforms were approved. Canadian companies, according to the country’s government, comprise the largest group of foreign mining sector investors in Mexico.
In January 2024, the Canadian Mining Journal reported that Mexican officials may issue additional environmental and other legislation that could further affect the nation’s mining industry.
Operational Challenges and Costs
Other influences can alter production capabilities. For example, power outages in South Africa, which produces the bulk of the world’s platinum, contributed to reduced mining output in 2023. Difficulty transporting mined materials within the country, CNBC says, has also been an issue.
Mining companies are also facing increased pressure to make their operations more sustainable. The mining industry currently accounts for 4–7% of global greenhouse gas emissions, according to McKinsey & Company.
With much of the easily-excavated gold in countries such as the United States, Canada, and Australia having already been removed, mining operations today can involve certain complexities, according to Diehl.
“[Today], gold is increasingly being sourced from parts of the world that are often politically and economically unstable,” the U.S. Money Reserve President says. “All that makes gold harder to find and more expensive to mine.”
The increased costs associated with mining can include heftier expenses for identifying new sources of precious metals.
The 40 largest mining companies spent more on exploration efforts in 2022 than they had in nearly a decade, according to professional services network PwC. Globally, gold exploration accounted for the highest of these expenditures.
When exploration and other mining costs become elevated, prices for gold and other precious metals can rise.
During the COVID-19 pandemic, for example, government-related restrictions, transportation issues, and illness-related workforce reductions in countries where precious metals were being mined slowed some mining efforts. In 2020 — the first year of the pandemic — annual global gold mine–related production dropped below 3,500 tons for the first time in four years, according to World Gold Council data. The London Bullion Market Association’s director of mine supply at Metals Focus referred to 2020 as “a challenging year for gold miners” in a 2021 article on gold production.
As output decreased, gold prices rose — moving from $1,517.24/oz. in 2019 to $1,898.60/oz. in 2020, according to U.S. Money Reserve’s gold performance records.
Future precious metals shortages could be possible, according to several industry organizations.
The World Platinum Investment Council’s latest estimate, published in September 2023, speculated that demand for platinum would rise 26% by the end of 2023. The organization also projected that a 1 million troy ounce deficit would occur because of production issues in major platinum-supplying countries.
The Silver Institute estimates that persistently high demand for the precious metal will lead to a shortage of silver through 2027.
A December 2023 S&P report also hypothesizes that if factors such as higher labor costs cut into mining profitability in 2024, companies may be forced to shutter some locations — actions that could raise precious metals prices.
“Higher-cost, newly-mined gold must draw a higher price to justify its mining and processing,” U.S. Money Reserve’s Diehl says. “That is driving a long-term rise in gold prices — and will continue to do so because each significant increment in gold that is brought to market will be more expensive. There’s that higher risk premium because of the political instability under which miners operate.”
