Why The Mining Industry Could Experience A Golden Year

Three decades of dwindling gold mine discoveries combined with increased industrial demand for gold across numerous industries has put a serious floor under the recent rise of the gold price.

Gold price was up 18.4 percent in 2019 and up about 44 percent since 2018 lows, with many analysts seeing gold going to $3,000 and as high as $10,000 per ounce. The impact of COVID-19 and a global market of near-zero interest rates paints a very bullish picture for gold prices, as well as safe haven demand. Three decades of underinvestment and over-regulation has resulted in a shortage of new economic discoveries, even as demand from new sources begins to inexorably devour more of finite global production. 

Gold hasn't seen this kind of exciting price action since 2010 - an 18.4 percent uptick in U.S. dollar terms last year and close to a 44 percent increase since the recent $1202.44 low in September of 2018. A powerful blend of safe haven buying, highly accommodative (near zero) interest rate policy from the Fed through 2022, and the looming spectre of COVID-19 haunting the stock market has sent many investors stampeding back into the yellow metal.

The sudden surge in gold demand during the coronavirus pandemic has surprised many veteran industry analysts, with prices recently soaring to a seven-year-high despite key traditional offtake sources like jewelry seeing a big sales slump. 

Jewelry normally accounts for over 52% of gold demand. However, World Gold Council (WGC) figures indicate a 65 percent year-on-year drop in the retail gold market within China, the world's largest jewelry maker, as well as a similar drop in the other major global jewelry market, India. The reality of the shutdown and the transparency of accumulating safe haven demand forces on the gold price are now cast in stark relief. 

S&P Global Market Intelligence data from April indicated that some 20 mines in top producing countries were forced to close due to COVID-19 and ongoing economic uncertainty could continue to produce unprecedented levels of central bank stimulus around the globe. 

At the same time, emerging applications for gold's unique properties continue to add new, broadening end markets across diverse sectors such as medicine, electronics, and high-tech industrial. Gold nanoparticles, for instance, are seeing increased use in everything from disease detection and treatment to enhanced efficiency solar cells and filtration systems.

Tiny particles and circuits may not seem like a big deal when we measure the global gold market by tonnage. But, with key applications in critical systems like municipal-scale water filtration and robust/high-performance consumer electronics components, the roughly 16 percent of global production currently consumed by these end markets is growing steadily every year.