No Gold at the Push of a Button: Why Limited Supply Drives Up the Price

August 25, 2026

After six installments that have addressed interest rate expectations, confidence in the U.S. dollar, central bank purchases, the dilemma facing the Federal Reserve Bank, U.S. government debt, and the size of the gold market, the seventh and final installment of this series focuses on the supply side of the market.

This raises a question that is as obvious as it is important: Why can gold production respond only very slowly, even when demand is rising sharply, and what long-term consequences does this have for the price of gold?

Gold Cannot Be Produced at the Push of a Button

Unlike many other commodities or even industrial goods, gold production cannot be ramped up quickly. Due to geological exploration, complex and lengthy permitting processes, the construction of necessary infrastructure, and substantial initial investments, many years—and often even decades—typically elapse between the discovery of a new deposit and the start of commercial production.

If demand for gold rises significantly in the short term—for example, because households in emerging markets are increasingly seeking physical gold as a store of value or central banks are expanding their purchases—this certainly pleases producers and boosts the entire sector. However, the sector cannot respond to the increased demand with a rapid rise in mine production.

On the one hand, mining is a very conservative industry; on the other, it is a sector in which investments can quickly devour large sums of money. Added to this is the cyclical nature of the business. Economic ups and downs, of course, also occur in other industries. Yet in no other sector are the cycles as sharp and as severe as they are in mining.

The current mining management has good reasons to be cautious

Taken together, these factors mean that investment decisions proceed more slowly than in other industries, and, in particular, management’s fear of making the wrong decisions is more pronounced. No one wants to recklessly jeopardize the very existence of their company simply because the price of gold has just turned around and is now on a new upward trend—one that no one really knows how long it might last.

A rising gold price is therefore not an immediate signal for the industry to spring into action, but rather a reason to wait and see. If the higher price level subsequently proves sustainable over time, the company’s own forecasts and plans will be adjusted—but this happens only hesitantly and with due caution.

A quick glance at the year 2026 shows why. In January, the price of gold briefly traded in the range of $5,500 per troy ounce. This was followed by a correction that brought the yellow metal back down to the $4,000 per ounce range. From there, the price of gold has now risen again by about $200.

What price should management now factor in when drawing up plans that can easily extend up to ten years into the future? $5,500? $4,000? $4,200? Or perhaps only $3,000—or even less? The question is anything but rhetorical, as it can very easily become a matter of survival.

Once bitten, twice shy

Another factor to consider is a psychological aspect that is having a dampening effect, particularly during the current rally: During the last gold bull market from 2009 to 2012, mining executives acted with relative optimism and confidence. This led many companies and projects into critical situations during the subsequent downturn, and even when the worst could be averted, many executives had to face accusations from their own shareholders that they had been too optimistic.

Keith Neumeyer, the CEO of First Majestic Silver—and thus someone who has experienced this firsthand—aptly summed up this dilemma last fall when he remarked in a public speech that the executives from that time are still active today and are not interested in having to hear that criticism a second time.

Assuming that Keith Neumeyer knows the mining industry and his fellow board members well and can accurately assess their psychological disposition, there is currently little reason to believe that mining companies and their boards will recklessly and hastily throw around billions in investments in the coming years simply because the price of gold rose by a few hundred U.S. dollars in early August.

Rising Marginal Production Costs

Compounding the issue is the fact that a large portion of the world’s easily accessible and cost-effectively exploitable gold deposits has already been mined. New projects increasingly require access to deeper deposits that are geologically more complex or more difficult to develop in terms of infrastructure.

This structurally drives up the marginal costs of production. This trend is exacerbated by rising energy prices, higher financing costs in an environment of elevated interest rates, and stricter environmental and sustainability regulations, which further slow down and increase the cost of the approval process for new mining projects.

In the long term, these rising marginal costs also affect the general price level, since new mining projects are only economically viable once the gold price reaches a certain level. A sharp short-term increase in gold production is therefore out of the question, even if the gold price were to rise overnight to $10,000 or more per troy ounce.

The consequence: Fluctuations in demand have a direct impact on the price

In a market where supply is largely inelastic in the short term, any additional demand must—and will—be absorbed through the price. There is no production buffer that could be activated in the short term to cushion a surge in demand.

This is precisely what distinguishes gold—and silver—from many other asset classes, where a supply surplus or a rapid expansion of production can dampen price spikes. When the structural demand described in the previous parts of this series—ranging from central banks to concerned investors to private households—meets such an inelastic supply, noticeable price reactions are the logical consequence.

Even a significant decline in demand would do little to change this, since mining projects, once started, generally continue for cost reasons, and production cuts in the industry can only be implemented with a considerable delay.

A Conclusion for the Entire Series

When the seven factors examined in this series are considered together, a picture emerges that extends far beyond the mere short-term price movements of a single trading week: Short-term shifts in interest rate expectations and weak economic data provided the immediate trigger for the recent rally.

However, the waning confidence in the U.S. dollar, ongoing central bank purchases, the Federal Reserve’s monetary policy dilemma, rising government debt, and the limited size of the gold market have a more structural and long-lasting impact.

Together, these factors will contribute to demand impulses being translated into price movements to a disproportionately large extent. Ultimately, the supply rigidity—which is set to persist for years—forms the structural foundation upon which all these demand factors operate.

Whether the gold price will initially consolidate after the sharp rise in early August or continue its upward trend cannot be reliably predicted. Nor is this decisive, as the structural factors outlined in this series suggest that gold is likely to remain a key consideration—one that every investor should keep an eye on—even beyond the current market phase.

The other parts of our major gold series:

Source：https://goldinvest.de/en/no-gold-at-the-push-of-a-button-why-limited-supply-drives-up-the-price