What If Gold Runs Out? Industry Expert Weighs In on Global Implications

As global reserves of natural resources face increasing pressure, the prospect of gold becoming a rare commodity is a topic of growing concern. Gold has long been referred to not only as a symbol of wealth and a secure investment but also as a critical component in various industries. But what would happen if the world’s gold mines were to run dry?

Rick Kanda, Managing Director at The Gold Bullion Company, shares his thoughts on the likelihood of this scenario:

“While completely running out of gold is highly unlikely, the implications of a significant reduction in new gold supplies are substantial. The value of gold would rise, impacting various industries and leading to increased investment in alternative materials and technologies. Currency values would remain largely unaffected due to the shift from the gold standard, but economic stability in gold-dependent sectors might face challenges. Continuous exploration, technological innovation, and recycling efforts are vital to mitigating these risks and ensuring a steady supply of gold in the future.”

The experts also highlight the potential economic, industrial, and financial repercussions of such a scenario, shedding light on how scarcity could reshape markets, industries, and investment strategies.

Value of gold:

• Price surge due to scarcity: The fundamental principle of supply and demand dictates that as the supply of gold dwindles, its price will likely skyrocket. Seeing the availability decline, investors would rush to acquire and hoard gold, increasing its cost. Historically, gold has been a safe-haven asset, meaning its value increases during economic uncertainty or scarcity.

• Alternative investments: As gold becomes prohibitively expensive, investors would likely turn to other precious metals such as silver, platinum, and palladium. These metals, often seen as substitutes for gold, would experience price increases due to heightened demand. Their use in various industrial applications and jewellery makes them attractive alternatives.

Impact on industry:

• Electronics & Technology: Gold is a crucial component in electronics due to its excellent conductivity and resistance to corrosion. A shortage would lead to supply chain disruptions and increased costs for manufacturers of electronic components, including smartphones, computers, and advanced medical equipment. Companies might need to invest in research to find alternative materials or more efficient recycling methods to mitigate these impacts.

• Jewellery: The cost of gold items in the jewellery industry would substantially increase. This could decrease demand as consumers turn to more affordable alternatives or buy less. High prices might also lead to innovation in the design and use of mixed materials, reducing reliance on pure gold.

Economic shifts:

• Stockpiling: Individuals and companies might start hoarding gold, anticipating further price increases. This stockpiling can reduce market availability, worsening the scarcity issue and increasing prices.

• Mining & extraction: With higher gold prices, deposits that were previously too expensive to mine could become economically viable. Mining companies would likely invest more in technology and infrastructure to access these difficult-to-reach or lower-grade deposits. This could lead to a short-term increase in gold supply but wouldn’t stop the long-term decrease.

• Increased recycling efforts: The economic incentive to recycle gold would grow. Industries and consumers might turn to recycling as a more cost-effective way to obtain gold. This could lead to advancements in recycling technologies and processes, making reclaiming gold from old electronics, jewellery, and other sources more accessible and efficient.

Rick Kanda provides his insights on the potential impact of gold mines running dry on the following factors:

Would this affect currency?

“Since the abolition of the gold standard, most global currencies are no longer directly tied to gold. This shift to fiat currencies means central banks can print money independently of their gold reserves. Therefore, while the scarcity of gold might influence the value of gold-backed securities or assets, it wouldn’t directly affect the value of currencies like the pound or the dollar. However, it could affect investor confidence and the perceived stability of economies that hold significant gold reserves.

How would this affect banks (e.g., the Bank of England, places like Fort Knox, etc.) and their stores?

“Institutions like the Bank of England and Fort Knox hold substantial gold reserves. If gold prices rise significantly, these institutions might consider liquidating some of their holdings to capitalise on high prices. However, the gold wouldn’t disappear; it would simply change ownership. The new owners would still require secure storage, so there would still be demand for extensive vaulting services like these.

Does it threaten the world economy in any way?

“Gold is a crucial commodity, and significant price fluctuations can affect the global economy. While the world might still have enough gold, reducing new annual supplies could increase gold price volatility. This volatility can impact industries that rely heavily on gold, such as electronics and jewellery, leading to higher production costs and potential economic instability in those sectors.

However, it’s important to note that gold does not disappear; it remains in circulation. As existing gold is recycled and reused, the total amount of gold available in the market remains relatively stable. The main impact would be on the cost and availability of new gold supplies rather than the resource completely running out.

Outside of obvious answers (such as gold jewellery), what products would be most affected by us running out of gold?

“Beyond gold jewellery, the most affected products would be those in the medical and electronics sectors. Gold is used in medical devices because it is corrosion-resistant and doesn’t harm our bodies. Gold’s excellent conductivity and reliability make it a critical component of electronics like smartphones and computers. Scarcity would lead to higher costs for these products and potentially drive innovation in alternative materials.

Is there anything being done in the industry to mitigate risk?

“Miners are continually exploring new sites and revisiting previously unviable locations. As gold prices increase, sites that were once too costly to use might become economically feasible. This could lead to the development of new mining operations, ensuring a continued supply of gold.

“There is ongoing research into recovering gold from unconventional sources. For example, the National Ocean Service estimated that there are 20 million tons of gold in the Earth’s seas. Currently, these fine particles are not recoverable, but if gold prices rise enough, it could become economically viable to develop cost-effective recovery methods.

“The industry is also focusing on improving recycling technologies to reclaim gold from electronic waste and other sources. Enhanced recycling methods can lessen the impact of reduced new supplies by ensuring that existing gold remains in circulation.