In 2007, South Africa fell from its longheld position as top gold producing country in the world, being replaced by China. This may lead some to believe that gold mining output in China is increasing, but this is not the case. China’s output actually peaked in 2005 and has been falling since then. The reason that China overtook South Africa’s number one position is that South Africa’s output is declining faster than China’s.

China’s decline in mining output follows a worldwide trend of declining production. The global decline is a delayed result of the extremely low price of gold in the late 1990s and early 2000s. This low price of gold meant that gold exploration and development of new mines was no longer affordable and operations were scaled back to only managing current mines. But because it takes more than 10 years to locate, extract, and put gold onto the market, we are now in the middle of a production decline resulting from the gold price of that period.

If the gold price remains high, there will likely be new exploration and gold discovery in China, but this is not yet in progress, and whenever the process begins, there will be a 10+ year delay in increased output. And according to mining industry reports, China’s current gold deposits will be depleted within the next 6-14 years.

With the world’s top gold producer’s output in decline, the gold supply will likely become even tighter in the coming years. The current global economic recession and subsequent investor demand for gold as a safe-haven has hit just as gold mines have gone into their cyclical decline. The combination of these two factors will likely drive the gold price much higher than it already is.

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