Gold is surging, but drilling still hasn’t caught up
Gold has been ripping higher, yet exploration and drilling have not kept pace. That mismatch is what has macro analyst Otavio Costa warning that the market could be setting itself up for a supply problem several years down the road.
- Gold has risen sharply, but drilling remains subdued.
- Central banks are still adding to gold reserves.
- Weak exploration today could mean tighter supply later.
Costa shared a chart based on data from S&P Global Market Intelligence, with estimates compiled by Azuria Capital, showing global drilling activity still sitting well below its 2022 peak. His point is simple. Gold prices can scream higher while the mining sector barely budges.
As Costa put it on X:
“It is remarkable that gold prices are nearly $3, 000 per ounce higher than in 2022, yet drilling activity remains near historic lows.”
That is not a claim of an immediate shortage. It is a warning about the ugly lag between price signals and actual mine supply. In commodities, that lag can be brutal. The market cheers the rally first and then acts shocked when nobody bothered to build the next wave of supply.
Why drilling matters more than the headline price
“Drilling activity” is the exploration work used to find and define mineral deposits. It is the front end of the mining pipeline, where companies decide whether a discovery is worth turning into a mine. If that front end stays thin, the whole pipeline eventually looks thin too.
Mining is slow by design. A deposit has to be found, drilled, studied, financed, permitted, built, and only then brought into production. That process takes years, not months. So when people ask why a high gold price has not immediately translated into a flood of new supply, the answer is simple. Mines are not software updates.
Gold can move fast on a chart. Dirt, steel, permits, and processing plants do not.
Costa’s warning is really about the medium-term and long-term picture. Existing mines can keep producing for a while, and recycling can help fill part of the gap. But if exploration stays weak while demand stays firm, the supply response later on can be much tighter than the market expects right now.
The data shows a cautious mining sector, not a boom
The cleanest hard numbers in the material come from S&P Global Market Intelligence. In its April update, global drilling activity eased for a third straight month to 190 distinct projects, down from 196 in March. The Pipeline Activity Index fell from 80 to 66, while the Indexed Metals Price rose to 114 from 112, the highest level since September 2014.
In plain English, metals prices were strong, but exploration breadth was still shrinking. That is not the kind of response you would expect if the industry were racing to flood the market with new supply.
There was one notable wrinkle. Exploration financing did not fall in value. S&P Global reported 158 financings in April, down from 235, but the total money raised jumped to US$1.23 billion from US$726 million in March. That was the second-highest amount raised since July 2014.
So the picture is not “nobody cares.” It is more like selective capital, not a broad-based exploration boom. Fewer deals, but larger checks. That is still caution, just with better tailoring.
Schiff’s take: same warning, less subtlety
Peter Schiff, who has been making the gold-bull case for years, echoed Costa’s concern and blamed miners for being too pessimistic about the future. He said on X:
“I've been pounding the table on this very issue for years. Investors, including mining company executives themselves, have been too bearish on future gold prices. Supply will not be there to meet soaring demand.”
Schiff’s bias is obvious. He is not some neutral referee sitting in the middle of the ring. He is a long-time gold advocate and a loud critic of fiat money. But bias does not automatically make him wrong. On this point, his broad argument lines up with the data. If miners stay cautious while prices stay high, future supply can lag badly. For a deeper look at his recurring clash with bitcoin, see Peter Schiff Slams Bitcoin as Bearish Against Gold in 2025.
Central banks are still buying, and that matters
Demand is not just coming from traders or retail gold bugs. The World Gold Council says central banks remained net gold buyers in July, purchasing 23 tonnes. That marked the fourth consecutive month of reported net buying, reinforcing the broader trend seen in Central Banks Piled in More Gold in July.
Central-bank buying is a different kind of demand. It is strategic, not momentum-driven. These institutions are diversifying reserves, managing geopolitical risk, and hedging against the kind of financial nonsense that tends to show up when currencies are being managed by committees and political agendas.
That makes central-bank demand a meaningful support for gold. It does not guarantee higher prices forever, but it does make the market less dependent on speculative enthusiasm alone. The logic behind a gold reserve is as old as finance itself: hold something scarce, durable, and harder to debase than a politician’s promise.
Why miners may still be holding back
It is fair to ask why mining companies are not drilling harder if the gold price is so strong. The answer is that the last cycle left scars.
Mining executives know that high prices can tempt companies into funding marginal projects that look brilliant on a slide deck and disastrous in real life. A high gold price does not magically fix bad geology, bad jurisdictions, high costs, or lousy recoveries. Some deposits still do not deserve the capital.
There are also the usual obstacles: permitting delays, environmental pushback, rising costs, and declining ore grades. Lower grades mean more rock must be processed to produce the same amount of gold, which can squeeze margins even when bullion is expensive.
So yes, some caution is rational. But too much caution is how the industry underbuilds when the signal is right there in front of it. That is how a supply problem sneaks up later, after everyone has spent years congratulating themselves for being “disciplined.”
Recycling helps, but it is not a fix
The source notes that recycling tends to react faster to gold prices than mine production. That makes sense. When prices rise, scrap, jewelry, and other existing gold holdings are more likely to come back into the market.
Recycling can soften the blow from weak mine growth. It can even help steady the market if investor demand cools. But it is still a pressure valve, not a replacement for new supply. If demand stays strong for years, recycled gold alone will not carry the load.
That is the core warning here. Not a crash, not an instant shortage, just the risk that today’s underinvestment becomes tomorrow’s supply squeeze. And if you want a reminder of how long-term commodity shocks can spill into public policy, the old congressional debate over Challenges to the Future of Highway Funding is a nice example of how infrastructure and financing headaches tend to show up when nobody planned ahead.
Key questions and takeaways
-
Is gold already facing a supply shortage?
Not right now. The warning is about the future, not an immediate shortage. Existing mine output and recycling still cushion the market. -
Why does weak drilling matter?
Because drilling is the start of the mining pipeline. If exploration stays weak, fewer projects make it to production years later. -
Are miners being irrational?
Not necessarily. Some caution is sensible because many projects are expensive, risky, and slow. But too little investment today can leave the industry short on supply tomorrow. -
Does central-bank buying help gold?
Yes, materially. The World Gold Council says central banks bought 23 tonnes net in July, and that steady demand helps support the market. Longer-term official-sector demand also lines up with the view that central banks remain committed to gold. -
Can recycling offset weak mine growth?
Only partly. Recycling responds faster to higher prices, but it cannot fully replace new mine supply if demand stays elevated for years.
The bigger lesson is simple: price moves are loud, but mining responds slowly. Gold may be flashing strength now, yet the drill rigs are still behaving like the party could end tomorrow.
For what it is worth, even mainstream market watchers have been forced to acknowledge that gold forecasts fall, but central bank buying expected to cushion the downside. That is the kind of sober caveat the market usually ignores until it is too late. If you want the blunt bitcoin-versus-gold angle, the long-running debate is still alive in Bitcoin vs Gold: CZ and Peter Schiff Battle Over Money’s future, with fewer polite niceties and more ideological artillery.
And yes, the miners are still acting like they have all the time in the world, even though the best warning signs are already on the screen. One more data point worth watching is the broader slowdown in Gold Price Warning: A Supply Problem the Market Isnt Ready, because if exploration stays this sluggish while demand keeps grinding higher, the “no problem” crowd may end up looking pretty stupid. If that sounds familiar, it is because markets love to ignore risk right up until they pay through the nose for it.
Also worth remembering: commodity cycles do not care about your narrative. A lot of the same investor psychology shows up in other hard-asset markets, including the boom-bust swings tracked in Challenges to the Future of Highway Funding and the broader flow of capital into resource development. When capital gets cautious, supply gets stingy. Shocking, I know.
Finally, if you are trying to map out the next phase of the mining cycle, keep an eye on the more boring but important signs in Mining Exploration and Financing Trends in April rather than the moonboy nonsense that floods social media. And if you want Schiff’s latest doom-flavored bitcoin take, Peter Schiff Predicts Bitcoin’s Hype Era Ends by 2026 with is exactly the kind of thing he would say while polishing a gold bar and sneering at the internet.
