Gold Supply and Demand Dynamics

The Total Stock of Gold: A Uniquely Stable Supply

One of gold's most important characteristics as an investment is the relative stability and predictability of its supply. Unlike oil or agricultural commodities that are consumed and gone, virtually all gold ever mined still exists in some form — whether as jewelry, coins, bars, or electronic components. The World Gold Council estimates that approximately 212,000 metric tonnes of gold have been mined throughout human history as of the early 2020s, with roughly 54,000 tonnes still in the ground as known reserves.

Annual mining production adds only about 3,000–3,500 tonnes per year — roughly 1.5% of total above-ground stock. This very low "stock-to-flow ratio" means that even a dramatic increase in mining output would take many years to meaningfully change the supply picture. Compare this to silver, where the ratio is much lower, or to agricultural commodities where annual production can approach or exceed existing stocks. Gold's high stock-to-flow ratio is a key reason it retains value as a monetary asset: no single actor can dramatically inflate the supply.

The Supply Side: Where Gold Comes From

Mine Production

Mining is the primary source of new gold entering the market, accounting for roughly 70%–75% of total annual supply. The top gold-producing countries as of the early 2020s include China (the world's largest producer), Russia, Australia, Canada, and the United States. West African nations — Ghana, Mali, Burkina Faso, and Senegal — are increasingly significant producers.

Mine supply has grown modestly since the early 2000s but faces significant structural headwinds:

• Declining ore grades: The richest and most accessible deposits have largely been found and mined. Remaining deposits often have lower gold concentrations, requiring more ore to be processed per ounce produced.
• Rising costs: The All-In Sustaining Cost (AISC) of gold production has risen substantially over the past two decades, now averaging $1,200–$1,400 per ounce globally. This rising cost floor provides a price support mechanism for gold.
• Long lead times: It typically takes 10–20 years from discovery of a significant gold deposit to full production. This means supply cannot quickly respond to price signals.
• Regulatory and ESG pressures: Environmental regulations and investor ESG requirements are adding costs and delays to new mine development.

Recycling (Scrap Gold)

Recycled gold — primarily from old jewelry, electronics, and industrial uses — typically accounts for 25%–30% of annual gold supply. Recycling is price-sensitive: when gold prices rise, more people and businesses choose to sell their gold jewelry and scrap, increasing supply. This creates a natural price-smoothing mechanism, as recycling supply increases when prices are high and decreases when prices fall.

The electronics recycling industry is a growing source of gold recovery. Modern smartphones and computers contain tiny amounts of gold in circuit boards and connectors. As global electronics consumption grows, so does the potential for gold recovery from e-waste, though current recovery rates remain relatively low.

Central Bank Net Sales or Purchases

As discussed in detail in our central banks and gold article, official sector buying and selling can significantly affect net market supply. In the 1990s and 2000s, European central banks were net sellers, adding hundreds of tonnes to market supply annually. Since around 2010, central banks globally have become consistent net buyers, effectively removing supply from the market and adding to investment demand simultaneously.

The Demand Side: Who Buys Gold and Why

Jewelry: The Largest Single Demand Category

Jewelry accounts for the largest share of annual gold demand — typically 40%–50% of total consumption. The largest jewelry markets are India and China, which together account for roughly 50% of global jewelry demand. Middle Eastern and Western markets are also significant.

Gold jewelry demand is driven by cultural and ceremonial factors (weddings, festivals, gifting traditions) as well as pure aesthetic preference. In India especially, gold jewelry serves a dual purpose as both adornment and savings — particularly important for households without access to formal financial services. This cultural demand base provides a relatively stable, price-sensitive floor under gold consumption.

Gold jewelry demand is inversely price-sensitive: when gold prices rise, jewelry buyers purchase smaller pieces or shift to lower-karat gold. When prices fall, jewelry demand typically rises as consumers feel they are getting better value. This creates a counterbalancing demand force against sharp price increases.

Investment Demand: The Market Mover

Investment demand — from individuals, institutions, and ETFs buying gold as a financial asset — is the most dynamic and price-sensitive component of gold demand. It is also the most important driver of large price moves.

Physical investment includes gold bars and coins purchased by individual investors and institutions. This category surged significantly in 2020–2022 as inflation fears and COVID uncertainty drove retail investors to physical gold and silver.

Gold ETFs are a major source of institutional investment demand. Large ETFs like SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) hold physical gold in vaults and allow investors to gain gold exposure through stock markets. When institutional investors buy ETF shares, the fund must purchase physical gold to back them, creating direct metal demand. Conversely, ETF outflows add physical supply to markets. Monitoring ETF holdings data (published daily) is one of the most useful tools for tracking investment demand trends in real time.

Futures and derivatives markets (primarily the COMEX in New York and the London OTC market) are where most gold price discovery occurs. While the bulk of futures trading is paper gold that never results in physical delivery, these markets reflect and aggregate global expectations about gold's future price.

Technology and Industrial Demand

Gold's unique properties — exceptional electrical conductivity, chemical stability, and resistance to corrosion — make it valuable in high-technology applications. Electronics are by far the dominant industrial use, with gold used in circuit board contacts, bonding wire, and connectors across computers, smartphones, and medical devices.

Technology demand accounts for roughly 7%–8% of total gold demand — small relative to jewelry and investment but growing alongside global electronics production. Unlike jewelry, most technology gold is not recyclable at the unit level (though industrial recyclers can recover it from e-waste). This creates a consumption-based demand that permanently removes gold from the market.

The Gold Price Discovery Process

The global gold price is set primarily through two mechanisms: the London Bullion Market Association (LBMA) electronic auction (which sets the twice-daily "London Fix" benchmark) and continuous trading on the COMEX futures exchange. These prices are quoted in US dollars per troy ounce and are the reference prices used for physical dealer pricing worldwide.

The COMEX spot and futures markets involve both physical and paper gold, with the vast majority of contracts never resulting in delivery. Critics argue this means paper markets can temporarily distort gold's price independent of physical fundamentals. Proponents note that arbitrage between physical and paper markets keeps prices closely aligned. For long-term investors, these short-term dynamics are less important than the fundamental supply-demand balance over time.

Supply and Demand Outlook

Looking ahead, the fundamental supply-demand backdrop for gold appears broadly supportive of higher prices over the long term:

• Supply constraints persist: Declining ore grades, rising production costs, and long development timelines limit how fast mine supply can grow.
• Central bank demand elevated: Structural shift toward gold in global reserve management appears durable, not cyclical.
• Investment demand growth: Growing global middle classes in Asia and elsewhere are increasing gold investment demand.
• Technology demand rising: Continued growth in electronics and emerging green energy applications (gold in electronics for solar and EV technology) supports long-term industrial demand.

None of these factors guarantees price appreciation in any given year, and gold prices remain subject to significant short-term volatility driven by interest rates, the dollar, and investor sentiment. But the fundamental supply-demand picture provides structural support for the metal over investment time horizons measured in years and decades.