Summary of Key Points
This article focuses on the impact of supply-side dynamics in gold and silver on their prices, challenging the common belief that "demand dictates the market." The main conclusions are as follows:
1. In recent years, the production of gold and silver mines has been declining steadily.
2. The growth rate of mine supply is inversely correlated with prices: faster supply growth leads to lower prices, and vice versa.
3. Changes in the supply of gold and silver mines affect each other's prices, with gold having a greater influence.
4. The supply from secondary recycling (reusing previously mined materials) is a result of rising prices, not a cause.
5. Although the prices of gold and silver are highly correlated, their different uses result in varying price elasticity.
I. Declining Production in Gold and Silver Mines
In recent years, the supply of raw gold and silver from mines has been on the decline:
- Gold: It peaked at 106 million ounces per year in 2017 and then dropped to 96.8 million ounces, a decrease of nearly 10%.
- Silver: The peak was 873.3 million ounces in 2016, and it has now fallen to 797.7 million ounces, a decrease of about 9%.
In short, the amount of newly mined gold and silver is decreasing, which sets the stage for potential price increases.
II. The Reverse Relationship Between Mine Supply Growth Rate and Prices
The article mentions a key indicator: the "growth rate of the money supply in gold," which represents the proportion of newly mined gold relative to the total amount of gold already in circulation. Historical trends show a clear pattern:
- When this growth rate is high (more new gold being produced), gold prices tend to be low.
- When the growth rate is low (less new gold being produced), gold prices usually rise.
For example, the decline in mine production and the slowdown in supply growth over the past few years have contributed to rising gold prices.
III. Mutual Influence of Gold and Silver Supplies, with Gold Having a Greater Impact
The study used a model to analyze how changes in their supplies affect prices:
- A 1% increase in gold supply leads to a 1.7% decrease in its price and a 2.78% decrease in silver prices (silver is more sensitive to changes in gold supply).
- A 1% increase in silver supply results in a 1.24% decrease in gold prices and only a 0.79% decrease in silver prices (gold is less responsive to changes in its own supply).
Why does gold have a greater impact? Because the economic value of gold is 7.2 times that of silver (based on June 2026 prices: gold's annual mining output value is $436 billion, while silver's is only $60 billion). Additionally, gold is primarily used as a currency and for value storage, whereas silver is mainly used in industrial applications, giving gold more market dominance.
IV. Secondary Recycling: A Result of Rising Prices, Not a Cause
Some may ask if recycled gold and silver should be included in the supply calculation. They should, but recycling is different from mine production:
- In 2025, recycling accounted for 28% of gold supply and 29% of silver supply. However, there is a positive correlation between recycling rates and prices: when prices rise, people are more willing to sell their old jewelry and silverware, which drives up recycling volumes. Therefore, recycling is a consequence of price increases, not a cause.
V. High Price Correlation, but Different Demand Elasticities Due to Different Uses
Gold and silver prices are highly correlated (with correlation coefficients between 0.6 and 0.92 over the past 20 years), but their different uses result in varying price sensitivities:
- Gold: Primarily used for currency storage and jewelry, so jewelry demand is highly sensitive to price changes (higher gold prices reduce demand). Industrial demand is limited, with only a few sectors (such as dentistry) being significantly affected (e.g., the shift to ceramic materials in dentistry has reduced gold usage).
- Silver: Widely used in industries (electronic products, solar panels, etc.), so industrial demand is less sensitive to price changes. For example, the cost of silver in solar panels is low, so a slight increase in silver prices does not significantly reduce demand. Additionally, the sensitivity of the jewelry industry to silver prices is lower due to silver's relatively low cost.
Conclusion
The supply side has a greater impact on gold and silver prices than we might think (models can explain up to 40% of annual price fluctuations), especially the reduction in mine supply, which has been a significant factor in recent price increases. To predict future trends in gold and silver prices, it is essential to monitor changes in mine production alongside demand factors.