The Price Went Up and the Ounces Did Not

The first quarter of this year produced the highest average nominal gold price ever recorded, up 17 percent on the previous quarter and 70 percent on the year before, with spot briefly touching $5,595 an ounce in January. A price move of that size is supposed to call forth supply. That is what prices are for.

It did not. World mine production in 2025 came to 3,671.6 tonnes, a record, and a record by one percent over the year before. Recycling added 1,404.3 tonnes, up three percent, for total supply of 5,002.3 tonnes. The first half of this year produced 1,866.9 tonnes from mines, about two percent above the same period last year, while recycled supply actually fell six percent in the second quarter. Total supply for the half was roughly flat. The World Gold Council's own summary of its outlook is unusually plain for an industry body: it sees only modest growth potential from mine production and recycling.

The Historical Echo

This has happened before at far greater magnitude, and the record is worth stating precisely because the conclusion is counterintuitive. Gold was fixed at thirty five dollars an ounce under the Bretton Woods arrangement until the United States suspended convertibility on the fifteenth of August 1971. By the twenty first of January 1980 the London afternoon fix reached $850. That is a twenty four fold increase in nine years, the largest sustained price signal any commodity has sent in the modern era.

South Africa was then the dominant producer, and South African output went the other way. Production peaked at roughly a thousand tonnes in 1970 and fell, decade after decade, to 130 tonnes by 2018. The World Gold Council attributes that decline to mine closures, maturing and depleting assets, and ore bodies that had to be worked ever deeper. Not to price. The price did everything a price can do, for a decade, and the country holding the world's richest goldfields produced less each year regardless.

The reason is geological rather than economic. An ounce of gold is not manufactured. It is located, permitted, financed, and then extracted from rock that gets poorer and deeper as the good rock is used up. S&P Global's study of mines that entered production between 2020 and 2023 put the average lead time from discovery to first output at close to eighteen years. A price signal today is a production decision in the 2040s.

Where Patient Capital Is Positioning

The economics of the miners themselves have rarely looked better, and that is the detail that makes the supply response so telling. All in sustaining costs rose 16 percent year on year in the first quarter to $1,785 an ounce, which sounds like cost pressure until it is set against the price. The average margin per ounce reached $3,076, up 25 percent in a quarter and 134 percent in a year. Even producers in the costliest decile cleared more than $2,300 an ounce.

Margins like that would, in any manufactured good, bring a flood of new capacity within eighteen months. In mining they bring higher royalty payments to governments, which have risen from about six percent of all in sustaining costs in early 2021 to roughly twelve percent now, and they bring more aggressive extraction of deposits already permitted. What they cannot bring is ore that has not been found.

This is the structural fact underneath every hard asset this letter examines, and gold states it most clearly because the price signal has been loudest. The supply of a mined commodity is set by decisions made fifteen or twenty years ago, by geology that does not consult the market, and by permitting regimes that have grown slower rather than faster. Paper claims on gold can be created in an afternoon. Ounces cannot.

For a family holding physical metal across generations, the practical consequence is simple and worth holding onto when the price is volatile, which it will be. Every year that demand exceeds what mines and scrap can deliver, the shortfall comes out of inventory held by someone who decides to sell. The stock of above ground gold grows by roughly one and a half percent a year and has done so for a long time. That is the whole of the supply response, whatever the price does.

The Capital Memo