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Gold Production In 30 Years: 'Supply Will Struggle To Expand,' Require Higher Prices - WGC

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Gold Production In 30 Years: ‘Supply Will Struggle To Expand,’ Require Higher Prices — WGC

(Kitco News) - The global gold supply “will struggle to expand” over the next 30 years, as new discoveries will be “scant” and costs plenty, the World Gold Council (WGC) said in a collection of essays titled ‘Gold 2048’.

New mine supply will be dragged down in the next 30 years by rising discovery and mining costs, the WGC said quoting data provided by the precious metals consultancy Metals Focus.

“Discoveries have been scant; permitting timelines are long and becoming more extended; capital costs for the next generation of large, low-grade open cast mines have ballooned, perhaps beyond readily fundable levels; environmental, social and governance (ESG) requirements are becoming more challenging; operating costs have risen; and political risk has increased in many prospective regions,” wrote WGC’s chief market strategist John Reade.

In-ground gold mineral reserves at the end of 2016 totaled a little over 55,000 metric tons, said Metals Focus head of mine supply Mark Fellows.

“Even including a generous metallurgical recovery factor of 90%, this would only provide the industry with enough ore for 15 years of production at current rates. However, there are an additional 110,000t of gold within known mineral resources, more than enough to carry existing supply rates beyond 2048,” Fellows added.

Challenges, which are already present within the industry, will only grow as mining will require higher gold prices to be sustainable, Reade pointed out.

“Even today, new gold mines need a price of about U.S. $1,500/oz, and with costs having increased at a compound annual rate of 10% over the past 15 years, additional [Environmental, social and corporate governance] ESG costs are likely to mean that even higher gold prices will be required in the future,” he said.

New large gold discoveries are already rare and will become even scarcer in the next three decades, the essay states.

“There is always the potential for a major discovery along the lines of the Witwatersrand or Nevada gold deposits but the industry has been looking exhaustively for such deposits with very limited success,” Reade wrote.

In contrast to falling supply, gold demand is projected to grow, especially when it comes to jewelry and technology demand.

“Looking ahead, we expect jewelry demand will persist in developed markets. The excitement, however, will focus on emerging markets, as developing countries’ economies – and in many cases their populations – grow,” Reade said. “[On top of that,] rising wealth, connectivity and the use of electronics in ever-expanding applications will require increasing amounts of gold.”

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