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The China Gold Association released the H1 2026 gold production report on July 28, showing domestic gold output fell 5% year-on-year to 168 tons, the lowest for the same period in five years. Meanwhile, the industry's average production cost rose 15%, pushing the breakeven point for gold mining companies to around $1,680 per ounce. Analysts pointed out that supply-side contraction and cost rigidities provide solid bottom support for international gold prices, especially against robust consumer demand in Asia-Pacific, tightening the gold supply-demand balance.
Continued Production Decline: Falling Ore Grades and Tighter Environmental Regulations
The report showed that H1 gold mine production in China was 145 tons, down 6.3% year-on-year; by-product gold (non-ferrous smelting by-products) was 23 tons, up slightly 0.4%. The decline was concentrated in major producing areas such as Shandong, Henan, and Fujian, mainly due to the depletion of high-grade ore bodies over the past five years, with the average grade dropping from 2.6 grams per ton in 2019 to 2.1 grams per ton in 2026. In addition, the delineation of ecological red lines and stricter mine reclamation requirements led to shutdowns and upgrades at some small mines, affecting short-term output.
Zhang Yongtao, vice president of the China Gold Association, said at the press conference: "The decline in output is an inevitable result of the industry's structural adjustment. The extensive mining model of the past decade is no longer sustainable, and the industry is shifting from 'scale expansion' to 'quality and efficiency improvement.' Although mine gold output decreased in H1, large mining companies improved unit ore recovery rates by 3 percentage points through digital management and intelligent beneficiation technology, partially offsetting the impact of declining grades."
Soaring Costs: Overlapping Labor, Energy, and Environmental Expenditures
The report noted that the average all-in sustaining cost (AISC) for the gold industry in H1 2026 was $1,380 per ounce, up 15% from H1 2025, a new record. Labor costs rose 12% year-on-year due to shortages of mining technicians and increased safety training investment; energy costs rose 18% due to higher diesel and electricity prices; environmental expenditures increased 25% year-on-year, including tailings pond management and ecological restoration costs.
"The cost rise hits small and medium mining companies particularly hard," said Wang Lei, an analyst at international precious metals consultancy Metals Focus. He noted that about 30% of domestic mines now have an AISC exceeding $1,500 per ounce. If gold prices fall below $1,700 in H2, some mines may face losses or closures, further tightening supply. Globally, major gold-producing countries such as South Africa and Peru also face cost pressures, shifting the global total cost curve to the right and supporting a higher gold price floor.
Widening Supply-Demand Gap: Asia-Pacific Consumption Resilience as Key Variable
While supply contracts, gold consumption in Asia-Pacific remains robust. World Gold Council data shows that in Q2 2026, China's gold jewelry demand edged down 2% year-on-year, but gold coin and bar investment demand grew 18%, with Shanghai Gold Exchange trading volume hitting a quarterly record. In India, although the gold import tariff cut to 6% on July 1 triggered short-term arbitrage selling, pre-Diwali stocking demand is expected to support a consumption rebound in H2.
"The decline in Chinese production has a significant impact on the Asia-Pacific regional market," said Chen Jialiang, trading director at Singapore precious metals dealer Silver Bullion Pte Ltd. China is the world's largest gold producer and second-largest consumer; reduced output means increased imports to meet demand, which, amid continued central bank gold purchases globally, will further boost Asia-Pacific benchmark gold prices. This year, the premium of Shanghai Gold Exchange Au9999 over London gold has at times exceeded $30 per ounce, reflecting regional supply tightness.
Market Interpretation: Clear Gold Price Floor but Short-Term Technical Correction Risks
Stimulated by supply-side positives, international gold prices oscillated in the $2,080-2,100 per ounce range this week, up 22% from the start of the year. Technically, COMEX gold futures faced strong resistance near $2,100, but daily moving averages are in a bullish alignment, and the MACD histogram has expanded slightly. Analysts believe the production data reinforces the long-term bullish logic, but the market needs to digest uncertainty ahead of the Federal Reserve's interest rate decision next week.
Goldman Sachs' latest report raised its end-2026 gold price forecast to $2,200 per ounce, mainly due to the widening physical supply-demand gap. "China's production decline is a structural change, not a cyclical fluctuation," said Goldman Sachs analysts, expecting Chinese gold production to fall another 15%-20% over the next five years, while Asia-Pacific consumption grows at about 3% annually, pushing the long-term gold price center higher.
For investors, gold mining stocks could benefit from the expanding price-cost spread. Leading miners such as Zijin Mining and Zhaojin Mining have recently seen net inflows from southbound capital in their H-shares, given their superior cost control and greater leverage to rising gold prices. However, caution is needed for short-term gold price pullback risks. If US GDP data exceeds expectations or rate cut expectations cool, gold may test the $2,000 threshold, but production and cost support are expected to limit the downside.
Outlook: Can Green Transition Ease Supply Constraints?
Notably, some miners are exploring ways to increase supply through gold tailings recovery and waste slag recycling. China National Gold Group announced a "urban mining" project to recover gold from discarded electronics, aiming for an annual output of 1.5 tons by 2027. However, these incremental volumes are still small and unlikely to reverse the overall supply contraction trend.
"The Asia-Pacific gold market is at an inflection point," said Li Jun, a researcher at Borun Asia-Pacific Finance. The decline in Chinese output and rising demand from India will reshape regional supply-demand dynamics, potentially making the Asia-Pacific market a dominant variable for global gold prices. When allocating gold assets, investors should pay more attention to supply-side cost factors and consumption-side structural changes, beyond just geopolitics and dollar interest rates.
