Gold Falls to 2019 Low on Record Global Production Forecast


Many precious metals have seen drastic reversals over the past couple of weeks. Most notably was palladium, which peaked in March close to the $1,600 level before crashing back down to the $1,300 range.

Gold has also declined since the beginning of this year before seeing some slight gains in price recently due to fears surrounding a looming economic recession. However, gold ended up falling Tuesday to the lowest point in the year upon news that global gold production is expected to surge.

Gold prices fell to around $1,275.90 per ounce in a day of heavy trading volume as over 30 million ounces were traded among investors. As bear market worries are slowly stepping aside, investors are rotating their money out of gold and into U.S equities, which have been doing well this year.

But the main driver of today’s price dip was due to a new report from S&P Global Market Intelligence, which predicted that global gold production worldwide would reach a record high this year following a decade of increased output.

In 2018, gold production increased for the 10th consecutive year to total 107.3 million ounces. The year-over-year increase of just under 1% was the smallest in the last decade, yet since 2008, output has risen by 40%. In 2019, we forecast further growth of 2.3 Moz, the strongest in the past three years, debunking commentary calling for peak gold,” read the report. “Looking at the current project pipeline, and without large-scale moves in the gold price or any speculative estimates on additions through exploration activity, we expect output to stay steady until 2022 and decline thereafter, as indicated by the declining global reserve base.”

Overall, the world’s gold mines are now producing 40 percent more gold than they did a decade ago, with the S&P report predicting this production will stay the same for the next two years. Over 15 percent of gold produced by 2024 will come from new mines that aren’t open yet, while this year will see half of the 2.3 million extra ounces produced this year coming from new gold mining operations.

The largest new mine would be Agnico Eagle’s Meliadine mine in Nunavut, Canada, bringing around 230koz of gold into the market by the end of this year. Another major source of the precious metal would come from Russia, with Moscow-based Polyus ramping up existing production to result in an extra 300koz of gold from that facility, resulting in one-third of the 900koz Russia will add in 2019 alone.

Overall, this increase in gold supply could be a major factor preventing the price of the precious metal from rising. With most experts predicting gold prices to jump as recession fears grow, this report could throw a wrench into those projections. Many major financial institutions remain positive that gold value will increase despite the report.

“We remain positive on gold prices in 2019 owing to a number of macro factors,” said Credit Suisse despite the signs of record gold production on the way. We continue to believe gold miners will operate against a backdrop of higher gold prices YoY [year-on-year] in 2019, and we (conservatively) estimate an average gold price of ~US$1,280/oz in 2019. Gold is being supported by ongoing geopolitical issues (U.S.-China trade war and Brexit, among others), concerns around slowing global economic growth and recession fears, and a more dovish U.S. Federal Reserve (no rate hikes in 2019).”

Time will tell whether gold will increase in value as originally predicted, or whether increased production will offset these macro-level factors.