Gold: Supply and Demand
As it is one of the most valuable metals in the world, people have always been fascinated with gold. Not only is gold used to add beauty to various objects, or in jewelry, but it is a fantastic investment tool. Many individuals who may not want to invest their money in the stock exchange, or would like a means to hedge against the stock market, buy gold in the form of bars or jewelry, which they can hold onto or sell when the price goes up. But where does all this gold come from? Do we make gold? Do we mine it? And if we mine it, how did it come into existence? Let’s take a look!
No, we do not make gold, and it was not made on our planet either. Scientists believe gold is created inside enormous stars across the galaxy when they explode and become supernovas. When a star becomes a supernova and produces gold, the metal eventually makes its way to other solar systems and planets. After much research, scientists concluded that the gold we are able to access on our planet came from asteroids during a time when the earth was still a relatively young planet – around 2 billion years ago.
Due to its inert nature, gold does not change very much in its appearance, which is why mines who discover gold find it in its usual condition. Another interesting fact is how a vast majority of the gold on our planet, roughly 99 percent of it, is located in the earth’s core. Since the temperatures and distances involved in reaching the earth’s core are incredibly problematic, we may never have access to those approximately 1.6 quadrillion tons of gold. Temperatures at the earth’s core are easily more than 9000 F. And the reason much of the gold on our planet is so deep in the earth’s core is due to the metal’s high density.
How Much Is Out There?
We already know how much gold is present in the earth’s core, but how much can we find in more accessible areas of the planet? Exact numbers for the amount of gold on the planet always vary, because gold has been mined for roughly 6000 years. Some historians and gold experts put the figure at close to 150,000 tons of gold, while optimistic estimates go as high as 2.5 million tons. And there is plenty of gold left for us to mine, with the United States Geological Survey from a few years ago estimating that at least 50,000 tons of mineable gold had still not been discovered.
If we took one of the many estimates for the overall gold supply in the world, 165,00 tons in this case, we can get the total value of the world’s gold supply: roughly $8,487,000,000,000. More than half the gold that we have on our planet was extracted over the past 50 years, which may indicate that most of the current deposits we have discovered are beginning to deplete.
The days when we had massive gold reefs in Africa or massive nuggets of gold being discovered in California are long gone. But the fact that close to 50,000 tons of gold remain unmined suggests we may not have exhausted all the mineable gold sources just yet. And it does not appear as though the amount of gold being mined each year is slowing down anytime soon. The figure for 1990 was roughly 1,500 metric tons per year, with this figure having risen to roughly 2,500 metric tons by 2010.
Given the world’s population of roughly 7 billion, we can take our estimate of 165,000 metric tons and conduce that there is enough gold on the planet for each person to own around five gold rings. With the current price of gold, it would leave each person with roughly $1,200 worth of gold in their possession.
Where is Gold Produced?
For many years, South Africa stood as the biggest source for gold in the world. From the 1880s to 2006, it was the top source for gold mining around the world. For instance, the production of gold from South Africa was roughly 79 percent of the entire gold being produced in the world in 1970. But South Africa was overtaken by China in 2007, and it is not even in the top three countries The three countries that produce the most gold in the world are China, United States and Australia, with South Africa, Russia and Peru being notable mentions as well. These figures are based on the number of kilograms of gold produced by each nation in 2009. In 2016, China was the largest gold producer in the world, accounting for around 14% of total annual production
The largest gold mines in the world are located in Uzbekistan, Indonesia, the Dominican Republic, the United States, Russia, Argentina and Australia. As of 2014, the largest gold mine in the world is Muruntau, located in Uzbekistan. The second largest is Grasberg, located in Indonesia, with Pueblo Viejo from the Dominican Republic being the third largest gold mine on the planet. Peru’s Yanacocha takes fourth spot, while the United States has the fifth, sixth and seventh largest mines in the world.
Muruntau in Uzbekistan, the largest gold mine in the world, produced roughly 80 metric tons of gold in both 2013 and 2014. The second largest mine, Grasberg in Indonesia, produced 34 metric tons in both years.
Around 52 percent of the new gold we discover each year is used to create jewelry. The second biggest use of gold is for investment purposes, with gold bullions and coinage being produced on an annual basis by many countries around the world. However, investors may also purchase gold jewelry if they are attempting to invest their money in gold, since high end jewelry either increases in value over time or retains its value at worst. Private and national use of gold for investment purposes make up roughly 34 percent of the gold being mined each year, with 12 percent going towards industrial use.
Jewelry and currency have always been hugely popular ways to use gold. As far back as the first discoveries of gold over 6000 years ago, the metal has been used as a form of currency among civilizations. And the use of gold for jewelry stems from its innate beauty and value. For instance, cultures in countries such as India place a huge amount of importance in adorning the body with expensive jewelry in order to attract wealth, blessings and as a way to show one’s status in society.
When it comes to jewelry, craftsmen eventually realized that pure gold was not strong enough to handle the stress associated with making various types of jewelry. They started to alloy gold with other metals, such as copper or silver, in a bid to increase its durability. And this alloying process is why we now have jewelry with different karat values of gold. For instance, a piece of jewelry that is 24 karat gold is referred to as being pure gold, with a 50 percent gold alloy piece of jewelry being 12 karats.
Naturally, a piece of jewelry with a higher karat value is considered more valuable and expensive. Jewelry pieces with higher karat values are considered softer, but less likely to become tarnished over time. In contrast, lower-karat jewelry is stronger, but more likely to become tarnished over time. Higher karat jewelry would probably be more likely to retain or increase its value over time.
One of the great things about gold is how it is easily recyclable, which is why the supply of gold has never gone down at any point in recorded history. However, the increase of gold use in the technology industry means we may be coming to a point where gold is being consumed for the first time in history. Since gold is being used in technological products of such small sizes, it is not always economical to recycle those small amounts. A British Geological Survey estimated that around 10 percent of the world’s gold production is being used by the technology sector.
Due to its malleable nature, it strength and its electric conduction, gold is an ideal substance to use in electronics such as cell phones or other devices. For instance, a modern smartphone may contain as much as 50 cents of gold. Aside from smartphones, gold also finds its way in other small electronic devices, such as GPS units, TVs, desktop and laptop computers, electronic wires and much more. Gold is particularly useful for computers, because of the need to get massive amounts of digital information transmitted at rapid rates. You would often find little bits of gold within computer processors, RAM sticks and connector cables. In isolation, it does not sound as though each electronic device has very much gold inside it, but when we add up the number of units that are being produced of these devices on an annual basis, we can start to understand why so much gold is being used by the technology sector.
Gold has other industrial uses besides electronics. For instance, it is often used in dentistry and medicine as a means to create fillings, bridges, orthodontic items and crowns. The reasons for gold being popular in dentistry is because of how it is chemically inert, completely non-allergenic and very easy to insert. In fact, dentists have been using gold since 700 BC, and it is probably going to remain the top option for replacing missing teeth. Gold is also used on occasion for radiation treatments.
The aerospace industry also has a few uses for gold, because it is great for lubricating mechanical parts and conducting electricity. It is also used to coat the inside parts of space vehicles so that the people inside those vehicles are protected from infrared radiation and excessive heat.
And we cannot forget how gold is used to create medals and awards during various athletic, academic and religious ceremonies. Whenever we watch the Olympic games, we can see how athletes are presented with gold medals when they finish first during a competition.
As the world’s population continues to increase, as will its demand for gold. Not only are more people likely to want to own gold for investment purposes, but the amount of gold being used to create jewelry and for industrial purposes is only going to increase. Many gold investors believe the increasing demand for gold in the coming decades is going to further raise the supply of the precious metal, especially if our supply ever dries up.
Gold consumption is at its greatest in India and China, with India consuming roughly 745 metric tons of gold in 2009 and 2010, and China consuming 428 metric tons in the same period. Compared to those nations, the 128 metric tons consumed by the United States in 2009 and 2010 seems relatively modest! The next countries on the list are Turkey, Saudi Arabia, Russia and the UAE, with their figures well below 100 metric tons over the two-year period. In fact, roughly 88 percent of the gold consumed in 2009 and 2010 was consumed by 15 countries, leaving only 12 percent for the remaining 181 countries in the world.
If we take a look at the price of gold over the past 50 years, along with the past decade, we can see a clear trend of price increases. Even though there have been sharp increases or decreases in the price of gold from one year to another, the general trend is an increase in its price. And the most significant increase has taken place over the past 10 to 15 years. As people become less confident and certain of the stock market and other financial investments, they turn their attention to gold. And as more people wish to buy gold, the price of the metal continues to rise. It is unclear whether the sharp rise noticed from 2000 to 2016 is going to continue, or whether prices are going to stabilize over the coming five to ten years.
Podcast on Gold Suppy and Demand
World Gold Council. www.gold.org.