Not all that glitters is gold – Ceteris Paribus

One of the memories of Jesus that continues to baffle me is his first miracle. Why on earth did he not heal the blind, the deaf or the leper first? Why wine? Well, this question will never be answered. In 2018, at the famous Sotheby’s in New York, a single bottle of a 750ml 1945 Domaine de la Romanée-Conti (DRC) vintage wine sold for a whopping

$558,000. It was part of a 600-bottle stock produced in 1945. This marked the world’s most expensive wine.

In this past Harmattan weekend, Bright Simons suggested that price rises lead to increases in supply. Generally, he is right but as I indicated on the Newsfile, it is not absolute. Let us revisit our 1945 bottle whose price moved to its all- time high in 2018. Under general economic principles, supply should increase. So, should we expect to see more 1945 vintage bottles produced? Hell No. 1945 is 81 years ago and the clock never moves back. We are stuck with whatever is left of those 600 bottles forever. Though true and extreme an example, it reminds us that economics is often not a perfect math.

I have news for you. Though prices hit their record high in 2025, large scale mining output for Ghana fell from about 104mt in 2024 to 101mt in 2025. Shocked? Don’t be. As prior said, economics is often not a perfect math. There are real constraints to general rules and in this case a reminder that not every price signal has an immediate supply response.

This article seeks to assess whether or not, the argument that gold production increased in 2025 because of price increases in 2025, is right or reasonable for policy analysis, public education and policy consideration. This production level comprises production by Large Scale Mines (LSM) and Artisanal Small-Scale Mines (ASM).

 The Basic Theory Movement Along the Supply Curve (ceteris paribus)

Economics 101, teaches us that when the price of a good rises, producers are incentivised to supply more to the market, seeking greater profits, all things being equal (ceteris paribus). This response assumes that producers have the means and resources to expand production quickly and efficiently. This expansion is a movement along the supply curve, from point A to point B (see fig 1), assuming all other determinants of supply remain constant.

In the case of gold:

• Mines with spare capacity may increase
• Marginal mines may become profitable and
• Small-scale miners may intensify

However, this textbook relationship critically depends on the assumption of price elasticity of supply—the idea that quantity supplied is responsive to price movements.

1.1   Is the Basic theory Always the Case?

No. Not All Supply Curves Are Equally Responsive.

Economics 201 tells us that all things are not always equal and as such, there are instances where prices increase and yet supply hardly moves. In fact, in some instances, supply falls.

A key omission in the simplistic “price causes production increase” narrative is the assumption that supply is price

elastic (explained below). In practice, many goods—especially natural resources—exhibit varying degrees of elasticity.

1.2    Price Elastic vs. Price Inelastic Supply

Simply put, price elasticity of supply is just a measure of how quickly and easily producers can increase the amount they supply when the price goes up. Think of it as the producer’s “speed of response.”

• If suppliers can increase production quickly when prices rise, supply is elastic. We describe this in a graph as a forward curve (see Fig 1).

Example: A bakery can bake more bread tomorrow if the price of bread goes up today.

• If suppliers cannot increase production quickly, supply is inelastic. In economics, we describe this in a graph as a steep forward

Example: A gold mine cannot suddenly produce more gold just because the price rises.

• If suppliers cannot increase production at all, supply is perfectly inelastic. The supply curve is vertical (see Fig 2). Example: the 1945 Vintage

These cases are all theoretically valid and observed in many real-world markets.

2.0    Nature of Gold Production

Gold differs from most other commodities due to its method of extraction. Unlike manufactured products, gold is mined, which involves a process that is both expensive and labour-intensive. The available deposits of gold are limited and often require substantial investment in exploration, advanced machinery, and skilled labour to access. When the price of gold rises significantly, mining companies are unable to immediately increase their output due to various constraints.

Generally, as long as marginal revenue (MR – the revenue from producing additional gold) exceeds marginal cost (MC

– the cost of producing the additional gold), firms are incentivised to increase output because each additional unit increases profit. They continue expanding until MR equals MC. Till this equation is attained, producers are incentivized to increase production. But be careful, you being incentivised does not mean you can act! In other words, you cannot be what you are not, simply because you will it!

 2.1   Are mines already incentivised?

To assess this, we need to estimate the profit margin of gold mining and compare same with the benchmark targets of their investors.

• The Benchmark Margin

Industry profitability data from CSIMarket shows that the metal mining sector typically records operating margins between 15% and 24% in normal market conditions. Similarly, CompaniesMarketCap reports an average operating margin of 21.9% across 297 mining companies. For the purposes of our analyses, let us use the upper band of 25% as the benchmark return for investors.

• The Cost of Production

The All-in Sustaining Cost of production (AISC) is the World Gold Council’s (WGC) standardized benchmark for comparing gold production costs across mines and companies. It comprises Cash Operating Cost (cost of mining and processing), sustaining capital, labour, energy, taxes and royalties. The cost for ASM gold is slightly different, lower and most unrecorded. Their operations are less capital-intensive but also less productive in terms of gold output or recovery. My interview with ASM operators indicates a cost of about 60% the cost of the large mines on a per ounce basis.

Table 1: AISC

Adjusted by the 2024 differential of +10.37% reported on Africa by the WGC.

• The Revenue

Table 2: Revenue Data

• he Margin

As can be observed from Table 3 and the graph (FIG3), the operating margins of the mines have been above the estimated maximum benchmark since 2023. For the large- scale mining sector, margins in 2024 were above 35% and above 50% in 2025. ASM on the other hand, have been experiencing abnormal profits of over 50% since 2022 (and possibly prior since prior years have not been factored in this analysis).

This implies that from a pricing perspective, mines have been fully incentivised by price since 2022 for ASM and 2023 for LSM to maximise their operations.

• The Answer

Yes, mines have been fully incentivised prior to 2025. From 2022 for ASM and 2023 for LSM.

Table 3: Operating Margin Analysis

For ASM where costs and technology are relatively basic, low and flexible, ramping up production has been the order of the day for years. In economic terms, marginal revenue (MR) has been greater than marginal cost (MR>MC) since 2022 and hence production was always going to be maximised.

The extra increase in prices in 2025 was of no extra incentive. In other words, production would have been ramped up as could have been the case in 2025 even if prices were at 2022 to 2024 levels.

3.0     Has there been a significant supply response to price increases?

A former President of the Ghana Chamber of mines I interviewed for this article put it succinctly when he said that mining is like a ship, it does not turnaround like motorbikes. Taking advantage of price hikes to boost production has two key options: developing new mines and/or maximising production of existing mines.

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Unfortunately, the processing capacity of existing mines are fixed and expanding mining operations (mining the ore) require more equipment, skilled human resource and capital. These require a long lead time of about three years after periods of planning and pitching for capital.

Developing a whole new mine on the other hand, could take 10 to 20 years for the mine to become productive.

It is not as simple as the Economics 101 general theory that higher prices yield higher production or supply in the short run. It is no surprise that LSM gold production dropped in the year of its highest price. LSM gold production has been consistently falling since 2022 despite a consistent rise in prices. It fell by about 8% from 2022 to 2025 despite a 91.5% increase in price (see Fig 4).

The ASM sector on the other hand, is relatively nimbler. It uses less complex machinery and low technology. However, the sector is less sophisticated and less interested in deploying or adopting higher technology and its corresponding capital investment to maximise the yields in their current operations. In effect, ASM mines scale up not by deploying higher technology, but by securing more concessions or mining acreages. It is no wonder that mining concessions (both legal and illegal) for ASM spiked in the three years preceding 2025.

ASM mining operations are of two typical types: Alluvial and Hardrock. Alluvial concessions of the maximum allowable 25 acres are often completely mined within four (4) months in an often 24-hour operations when managed by foreigners (a.k.a Mr. Chi). It seems our Chi brothers figured out the 24-hour economy way before the government. In regular operations, it takes up to 12 months to fully mine. In the case of Hardrock ASM, mining goes on for years till the ore grade fully depletes.

Interestingly, relatively few concessions were granted in 2025 (35 in 2025 vs 179 in 2024) per data from the Minerals Commission. Together with regulatory constraints on excavator imports and NAIMOS operations, ASM scale up was stifled in 2025 but not halted, thanks to illegal mining. For the most part, ASM concessions have been operating at capacity prior to 2025 (2022 at least) as indicated earlier. In my interview with major ASM miners and traders, they suggest that actual ASM production in 2025 was lower than 2024. They cite consistent harassment by security officials and regulatory constraints in 2025 as very inhibiting of their growth. Funny enough, official data does not say so. But be careful what you believe. As the Ashantis say, if a crocodile comes to tell you that the alligator is dead, you better believe it.

So, if no new technology and few concessions, how did ASM gold grow by over 60% to surpass LSM gold production? 60% is no small feat in one year. If we assume the fact of an already margin motivated and maximising sector since 2022, the answer we turn to is the ‘return of the SMUGGLED volumes into ‘official’ accounting’.

 4.0     The Smuggled Volumes

 SwissAid (2025) reports that about 229mt of Ghana’s gold was smuggled to the UAE between 2019 and 2023, averaging 45.3mt per year.

The graph (Fig 5) shows a 95.5% decline in production from 2017 all through 2021 despite a 42% rise in gold prices. How is it that the famous Economics 101 general principle of price elasticity of supply did not kick in? The answer is simple, ‘ceteris was not paribusing’. Again, when science meets human behaviour in Economics, science is not a perfect math. For all things are hardly equal.

The graph (Fig 5) also shows us a 2,929% increase in production in 2025 compared to the 2021 low of 3.4mt amidst a 92% increase in prices. Where on earth did the gold all of a sudden come from? How is it that production was bullish and high at 75.7mt when prices were at

$1,268/oz in 2017 but so low at 3.4mt when prices had increased by 41% to $1,798/oz in 2021? Only for production to soar to 22mt after a marginal $2/oz increase in 2022 and eventually 103mt in 2025?

The SwissAid study and an analysis of the UN COMTRADE database gives us the answer. SMUGGLING, SMUGGLING, SMUGGLING! It is worthy to note that the low production of 2021 was occasioned by the introduction of a 3% withholding tax while the high of 2025 had the removal of withholding taxes on gold export. In other words, the more you tax, the more they swerve!

Per the SwissAid (2025) data, about 45.3mt is smuggled to the UAE (based on 2019 to 2023 data). If you add this

45.3mt to the 2024 production of 63.6mt, we get 108.6mt, fairly equivalent to the 2025 production level of 103mt. While this may not be absolute, it gives an indication of actual production levels.

5.0     Why ASM Production Increased: A Shift of the Supply Curve, Not Movement Along It

All put together, Ghana’s gold supply curve in the short run is steep and arguably close to perfectly inelastic. This means the typical textbook relationship (higher price → higher quantity supplied) does not apply strongly here.

If the supply curve is very steep, then even large increases in the global price will cause little to no increase in quantity supplied. Therefore, the recent and substantial increase in recorded gold output must come from somewhere else.

Government efforts to curb smuggling have:

• redirected gold away from informal channels
• increased the share of production captured by official statistics
• improved domestic purchasing and export documentation
• strengthened regulatory oversight

In economic terms: The recorded supply curve shifted outward (see Fig 2) because more of the gold that was already being mined now passes through official channels. This mechanism, not global price changes, is the foremost credible explanation for the sudden rise in Ghana’s official gold production figures.

In summary, higher global gold prices cannot explain Ghana’s recent increase in gold production. The short-run supply of gold in Ghana is highly price-inelastic, meaning that even substantial changes in global price would not significantly inspire output for a market that is already price and margin motivated.

This distinction is critical for policy analysis, as mis-attributing the source of production gains can lead to incorrect conclusions about the effectiveness of government interventions and expectations of international price movements.

6.0     Dealing with Smuggling 

Marcena Hunter’s (2020) OECD study on illicit financial flows in Ghana’s artisanal and small-scale gold mining (ASGM) sector offers one of the most comprehensive examinations of why gold smuggling persists despite repeated enforcement efforts. Her work traces the entire value chain, from miners and local aggregators to international buyers, and shows that smuggling is fundamentally rooted in economic incentives rather than criminal intent.

Hunter demonstrates that when formal markets offer lower prices, slow payments, or burdensome compliance requirements, miners naturally gravitate toward informal buyers who provide better terms, faster liquidity, and fewer barriers. She argues that this incentive structure creates a rational, predictable pattern of leakage that enforcement agencies struggle to contain.

Her conclusion is clear: without competitive pricing, accessible formal channels, and market reforms that make legal trade more attractive than illicit alternatives, law enforcement alone cannot meaningfully reduce gold smuggling. In her view, the solution lies in reshaping the economic environment, not merely tightening the security perimeter.

7.0     Governments Strategy

Government deployed a three-pronged approach. It combined legal enforcement, market and fiscal incentives to minimise the incentive for smuggling.

• Legal Enforcement: Deploying GoldBod as sole buyer, regulator and enforcer with a mandate to arrest and prosecute smuggling has been a game changer. GoldBod’s execution of its mandate has been remarkable. It regularised the trading structure, established a relatively transparent system and built a healthy relationship with the industry.

GoldBod, through its taskforce, then showed some teeth by arresting various industry ‘big boys’, including American, Indian, Lebanese, Chinese and Ghanaian gold smugglers. This sent signals of enforcement commitment.

• Market Incentives: The Domestic Gold Purchase Programme pricing model of adopting transparent world market prices and near retail market exchange rates in fixing buying prices in Ghana Cedis removed the price incentives for miners to sell to This undoubtedly led to trading losses but ensured foreign exchange inflows for broader macroeconomic stability. My interviews with active licensed traders and some reformed smugglers confirmed that the smuggling incentive has been significantly wiped out by the DGPP purchase pricing model. They nonetheless indicate that some residual smuggling activities persist but for persons seeking to, in their words, ‘wash’ their money (money laundering and illicit flows).

• Fiscal Incentives: Government’s removal of the 5% withholding tax deepened the market incentives to sell ASM gold through official channels.

8.0     Conclusion

1. Ceteris does not always paribus! It is theoretically and practically inaccurate to assume that price increases will always lead to increases in Sometimes, supply is inelastic. The suggestion that the rise in ASM gold production by over 60% for 2025 was due to price, is inaccurate.
2. Gold mining is like a ship; it doesn’t turnaround like While rising gold prices can create incentives for increased production, a host of practical obstacles ranging from operational delays to environmental constraints mean that output does not always rise in tandem with prices. The complex interplay of supply elasticity, market forces, resource availability, and regulatory factors ensures that gold production remains a challenging and unpredictable endeavour, even when prices are at their peak.
3. Hunter’s OECD analysis shows that gold smuggling in Ghana is driven less by criminal intent than by economic incentives. When formal markets fail to offer competitive prices and accessible channels, miners rationally turn to informal buyers. Deepening enforcement alone is an inadequate solution.
4. Government’s strategy of maximising foreign exchange flows from ASM gold has been
5. It is for the above reasons that I fully understand and support the policy considerations around the Domestic Gold Purchase Programme (DGPP) and its related policy costs, considering the policy benefits we realise from macroeconomic stability. We must nonetheless invest in zeroing this cost and promoting increased transparency in the modus operandi of GoldBod and the

9.0      Policy Recommendations

1. The drop in LSM gold production is a sign of falling investments in the sector. Government must explore regulatory and fiscal incentives to promote investments and exploration in the sector.
2. Global gold depletion is real, accelerating, and irreversible in the medium Global reserves are estimated to be depleted by 2050 (Oregon Group, 2025). For Ghana, this is a strategic moment: a shrinking global supply increases the value of our remaining deposits, but also demands smarter fiscal, environmental, and industrial policy. The bank of Ghana’s gold for reserve programme must be sustained to enable Ghana benefit in that long term.
3. Ghana must transition from extracting gold to leveraging gold — for national resilience, industrialisation, and long-term prosperity. As Africa’s largest gold producer, we should position Accra as a West African gold trading and settlement centre.
4. GoldBod’s dominance of the ASM sector is commended but must be leveraged, not to just regularise the operations of the sector, but also to enforce environmental responsibility and accountability.
5. Our inability to fight illegal mining effectively is rooted in the abnormal profits in ASM and the workforce it attracts. That economic war will remain difficult to We should leverage GoldBod’s regularisation of the sector to facilitate cleaner technology that yields higher output recoveries for ASM operators. With this, we achieve a win-win situation. In my interview with a major aggregator, he recommends that ASM operations should be redirected from Alluvial to Hardrock mining, where environmental degradation is less and can be controlled.

GeePapa

Senyo K. Hosi

Entrepreneur, Finance & Economic Policy Analyst

7th January 2025

References:

 Gold Prices – 100 Year Historical Chart & Data

1. Illicit Financial Flows: Artisanal and Small-Scale Gold Mining in Ghana and Liberia

OECD Development Co-operation Working Paper No. 72 (2020). https://www.oecd.org/en/publications/illicit-financial-flows_5f2e9dd9-en.html

3. Gold Cost Drivers: A Veritable Pick and Mix | Post by Sarah Tomlinson | Gold Focus blog | World Gold Council
4. Metal Mining Industry Profitability by quarter, Gross, Operating and Net Margin from Q3 2025
5. https://companiesmarketcap.com/mining/mining-companies-ranked-by-operating-margin/
6. Gold Demand Trends Full Year 2022 | World Gold Council
7. At a glance | LBMA
8. Gold Price History United States 2025: USD Gold Prices
9. Gold Spot Prices & Market History | World Gold Council
10. Gold miners’ costs reached a record high in 2022 but dropped in the final quarter of the year | Post by Adam Webb | Gold Focus blog | World Gold Council
11. Gold miners’ AISC still rising, but at a slower pace | Post by Sarah Tomlinson | Gold Focus blog | World Gold Council
12. Gold Cost Drivers: A Veritable Pick and Mix | Post by Sarah Tomlinson | Gold Focus blog | World Gold Council
13. Ever upwards for AISC, but distinct regional variations are emerging | Post by Sarah Tomlinson | Gold Focus blog | World Gold Council
14. Gold Production & AISC Q1 2025
15. Ghana – African Gold Report
16. “Peak Gold”: Is the world running out of gold? Why explorers are critical as 2050 looms – The Oregon Group – Critical Minerals and Energy Intelligence
17. GoldBod Taskforce arrests American, Moroccan and Ghanaians for illegal gold buying – Ghana Gold Board
18. 25 Arrested in Accra for Illegal Gold Trading and Smuggling – Ghana Gold Board