In a world driven by rapid growth and technological advancements, it’s easy to overlook the enduring strength of gold. While economies boom and bust, gold remains constant—unchanged by time. Why? Its value comes from one undeniable fact: its supply is limited.

Gold’s scarcity is not just a fact of nature; it’s the foundation of its strength. Unlike currencies that can be printed or digital assets that can be replicated, the world’s gold supply is finite. Gold is tied to mining and geology, making it a reliable store of wealth for centuries. This natural limitation allows gold to resist forces that undermine other assets.

A Finite Asset in an Expanding World

Today, the total amount of gold ever mined is around 201,300 metric tons, or about 6.47 billion troy ounces. Most of this gold is held by central banks, institutional investors, and private individuals. Each year, only about 3,500 metric tons of new gold are mined. This represents a growth rate of just 1.5-2% per year. In contrast to digital and paper assets that expand endlessly, gold’s slow growth keeps it scarce.

The Gap Between Physical Gold and Paper Gold

Many investors don’t realize that the gold they see in financial markets doesn’t tell the full story. The market is flooded with paper gold, which includes futures contracts, ETFs, and unallocated gold accounts. These instruments give investors exposure to gold prices without owning the physical metal.

Here’s the problem: the amount of paper gold far exceeds the available physical gold. Some estimates suggest there could be 100 to 200 paper claims for every ounce of physical gold. This raises an important question: what happens if a significant number of investors demand physical delivery?

What Happens if Investors Demand Physical Gold?

If investors shift from paper gold to demanding physical delivery, the market could face a seismic disruption. Here’s why:

  1. Supply Shock: There are only 6.47 billion troy ounces of physical gold. The market would struggle to meet demand if investors tried to redeem their paper gold for the real thing. Quite simply, there isn’t enough physical gold to cover all claims.
  2. Price Surge: The imbalance between demand and supply would drive gold prices sharply higher. As investors scramble to secure physical gold, its scarcity would become apparent. Experts believe gold could double or even triple in price, depending on how much physical gold is sought.
  3. Counterparty Risk: Paper gold products rely on counterparties to fulfill obligations. If futures contracts or ETFs can’t deliver the promised gold, the market could face a crisis. Confidence in paper gold products would erode, leading to further instability.

This scenario highlights the importance of owning physical gold. While paper gold offers convenience, it cannot match the security of the real thing. In times of financial stress, physical gold holders benefit, while paper gold investors could face liquidity shortages or losses.

Potential Future Price of Gold

If investors demand physical gold en masse, its price could rise significantly. At today’s price of around $2,600 per ounce, here are a few possible price scenarios:

  • Doubling of Current Prices: In a moderate scenario, where demand increases but not to crisis levels, gold could double to $5,000 per ounce. This would happen if investors began favoring physical gold over paper, without straining the system.
  • Tripling of Current Prices: If demand becomes widespread, with fears of a collapse in the paper gold market, gold could triple to around $7,500 per ounce.
  • Extreme Scenario: In a worst-case scenario, where paper gold holders demand physical delivery en masse, gold could rise as high as $10,000 per ounce or more. This would represent a true supply shock, with demand far exceeding available gold.

Historically, gold has surged during periods of financial instability. In the 1970s inflation crisis and the 2008 financial crash, gold prices jumped dramatically. While predicting the future is speculative, gold’s limited supply ensures its value in uncertain times.

Physical Gold: The True Store of Value

Gold’s limited supply is a cornerstone of its value, in both calm and turbulent markets. For centuries, gold has offered a safe haven during times of uncertainty. It resists the dilution that plagues paper currencies and financial assets. This scarcity makes gold both an inflation hedge and a bulwark against over-leveraging in financial markets.

Why Scarcity Matters for Long-Term Investors

For those seeking stability and long-term wealth preservation, gold’s scarcity is key. Gold is not just a commodity; it’s a tangible asset that retains value through wars, crises, and systemic shifts. By owning physical gold, investors aren’t just hedging against volatility—they’re benefiting from its scarcity-driven appreciation.

The Scarcity Premium of Gold

Gold’s value is deeply tied to its limited supply, and that scarcity gives it lasting appeal. While paper gold products offer convenience, they can’t match the security of owning physical gold. As the gap between paper claims and physical gold widens, the importance of holding tangible assets becomes clearer.

In a volatile world, the finite nature of gold ensures its value. Gold offers a foundation for wealth preservation that stands the test of time. Whether or not investors demand physical delivery in the future, gold’s scarcity will continue to underpin its role as a reliable store of wealth.

For more information on how to hold physical gold in a secure, non-bank vault, feel free to reach out. Physical gold offers a level of security that paper products cannot match.

Disclaimer: The views expressed in this article are for informational purposes only and should not be taken as financial advice. Investing in gold or other assets involves risk. Past performance does not guarantee future results. Consult a qualified financial professional before making investment decisions.