Will the costs of gold mining translate into an increase in the prices of products made from this metal?

The Polish gold market will probably not achieve record gold sales in 2024, but further record prices of products made from this metal may be set. Its extraction is becoming more and more expensive. In December 2023 gold It recorded its highest price in history and is currently trading at over USD 2020 per ounce. Why and how can these factors influence the increase in the price of gold and when will we return to record gold sales in Poland? In the current economic landscape, where inflation risks, geopolitical uncertainty and financial market volatility are becoming an inherent element, the question of a possible increase in gold prices and the demand for gold is of interest to both investors and market observers.

For the first time in several years, we will probably not record gold sales records in Poland – forecasts the Management Board of the Treasury Mint.

Over the last 50 years, the price of gold has increased more than 40 times

It should be emphasized that this is not the end of the increase in gold prices. In the medium term, we expect prices to increase by approximately 4%. Why? Well,  gold mining costs such as wages, energy, gasoline, explosives and other materials needed to extract gold are increasing dramatically. No new significant deposits of this metal have been discovered in the world for a long time. Many mines are digging deeper and deeper, which also contributes to higher costs. Gold mining has remained at a similar level for years, approximately 3500 tons per year. In an open-pit mine, on average, about 1,5 grams of gold is extracted per tonne of screened aggregate, while in underground mines a little more - an average of 8 grams per tonne. Some analyzes say that the currently discovered deposits will be exploited by 2050. Therefore, if no new deposits of the ore are discovered, we can assume that demand and price may increase significantly in the long term.

Geopolitics without influence on gold

The current geopolitical situation is difficult, but it should not have a major impact on the price and demand of gold in Europe, including Poland. Interest rate cuts should not contribute to this either. Only the escalation of the conflict beyond our eastern border and the increase in tensions in the Middle East can change this, which of course I do not wish on anyone.

We anticipate an increase in gold prices, but we do not anticipate a significant increase in sales. Last year, 40-50% fewer investment products made from this precious metal were sold in Poland than in 2022 - he comments Adam Stroniawski, Managing Director of Sales at Of the Treasury Mint.

In Germany this decline was even higher and amounted to over 70%. For the first time in several years, we will probably not record gold sales records in Poland. However, it should be emphasized that gold investment products have become more popular among Poles than, for example, 10 years ago. Currently, you only need to have a few hundred zlotys to invest in your first 1-gram bar. I know people who choose gold as security for a peaceful retirement and systematically accumulate this precious metal, which in their case is a ZUS contribution. It is difficult to lose on such an investment in the long term.

When analyzing the situation on the gold markets, it should be remembered that all forecasts for 2024 are subject to a degree of uncertainty. The dynamically changing environment has repeatedly proven to us that some situations cannot be predicted, so we should remember to rationally diversify our savings portfolio.

Author The Treasury Mint