Gold Price vs Production, Actual and Conjecture

The first chart shows actual gold prices and production from 1994 through 2011.

sources: USGS http://minerals.usgs.gov/minerals/pubs/commodity/gold/mcs-2012-gold.pdf, and Kitco

It is interesting to me that there was not a big increase in production relative to the increasing price until 2011. Part of that delay may have been the time required to ramp up production in mines. 2012 may not set a new production record because of widespread strikes by miners in South Africa.

Another interesting point in the USGS data is the shrinking estimated world reserves. Using the mean production rate of 2,439 tons per year since 1994, the world has less than 19 years of gold production left before it runs out. The next shows three different scenarios for how production might occur in the future. They are all pure conjecture and I have no reason to believe one is any more likely than another.

If mean production rate continues and no new reserves are found, everything continues smoothly until about 2032, then production goes to zero regardless of price. Production could also ramp higher as price increases, then reserves are exhausted faster, or production could decline as energy prices rise in a falling exponential curve. Of course, something completely different may happen.

The black line shows an exponential price curve based on price data since 1994. I added it just to flesh out the thought experiment, but I have no feeling or conviction that price will behave that way.

note: long gold, but not making any recommendations to buy, sell, or hold.