MAY 9, 2018
Not surprisingly, gold exploration and production levels tend to roughly mirror the gold price. If gold is worth more, there is more reason to spend to find it and bring it out of the ground.
That trend halted in 2013. As the gold price has held steady, capital spends have fallen sharply. Finding new gold is not an easy or fast process; should the gold price move sharply higher, there will be no way to quickly ramp up supply.
At the time of writing the YTD (Year-To-Date) performance of gold in 2018 is +1%. But a consensus view held by the top global gold producers hold a much more constructive view for 2018 and beyond.
In 2017 gold mine production globally was approximately 105M troy ounces. According to Goldcorp the fundamentals support strong gold pricing in the near term. The company highlighted that mine supply is expected to marginally decline by 1% annually through 2021.
Furthermore, an analysis of the top 10 gold producers shows a reduction in developmental capital spending by >80% since 2012.
Due to underinvestment in the form of exploration and capital expenditures, empty project pipelines, and a lack of new discoveries, these all factor into declining mine production and reduced supply in the coming years. These are all major catalysts for the gold price and why new gold discoveries are attracting premium valuations and investor’s attention right now.