Gold Production in the United States May Lag Behind Demand

When President Regan signed the American Eagle Gold Coin Act in 1982, it was stipulated that the newly produced gold bullion Eagle coins would be exclusively made with gold mined in the United States. This was partly to encourage mining investment in the United States, but also allowed the sale of gold Eagles to distribute what amounted to a lot of extra gold. Indeed, as gold production worldwide increased, many nations issue coins after the US example.

At that time, the US was a leading gold producing nation, but still lagged considerably behind South Africa, the Soviet Union and Canada. In 1980, the production of gold that had been on an almost steady downward slide since the early 1950s, began to rise again. This was no mere blip in production statistics, however. It represented a tremendous leap forward in mining technology in the form of “heap leaching.” Using this method, crushed rock is treated with caustic chemicals that are able to remove even the tiniest gold particles from the parent rock.

The result over the next decade was incredible. By 1986, when the first few years of gold Eagle investments were offered to collectors and dealers by the US Mint, US gold production had already doubled. By 1990, US gold production had increased nearly ten-fold, making the US the second biggest producer of gold in the world after only South Africa.

However, after an overall upward trend in gold production throughout the 1990s, levels began to fall off again after 1999. Since the production of 22-karat bullion gold Eagles relies, by law, on the production of gold in the United States, this development caused a small about of concern among investors who regularly bought gold bullion Eagles.

However, when the interest in gold piqued in the late 'aughts over concerns about traditional investments and currently values, the amount of gold produced by the 30 mines that make up 99% of US gold production was called into question again. Shortages made it difficult for even mid-level investors to buy gold Eagles in sufficient quantity to satisfy their need to reroute money into a safe haven.

While rationing of gold Eagles was explained as a logistical slip-up in late 2008 when the increase in demand for the coins surged considerably from even the somewhat higher levels that had been observed since 2007. As of early 2009, gold Eagle investing (especially in proof coins) continues to be hampered by rationing.

By 2008, those 30 US mines (with the vast majority of production coming from Nevada, alone) were producing as much gold as South Africa and more than both Australia, Russia and Canada. However, this still represents a further 2% decline from the previous year. In fact, just as the price of gold has increased, worldwide production also continues to decrease. Could the gold-poor rocks that benefit the most from heap leaching lead to a just as precipitous drop-off in production?

The answer most likely depends on the amount of exploration that can be funded. Unfortunately for the supply side of things, this is occurring at a time when risk-friendly investment sources and the overall supply of money in the world has shrunk. There are several mines that are in the process of opening throughout the Southwest as of the late 'aughts. But, investors who are concerned about gold bullion Eagle coin availability worry that the shortage of gold planchets will continue indefinitely as demand remains high.

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Sam Brown

April 18, 2009