Gold shot up another 2.97% last week, closing at US$1260.10/oz. – a grand preamble to Toronto's PDAC, the world's largest mining conference, which opened on Sunday. This should give a battered mining industry an encouraging boost to a longed-for recovery in commodities. A long list of disturbing developments including, negative interest rates, uncertainty about the US election, the prospect of Britain's exit from the EU and general instability around the world has brought back the shining appeal of gold, as a safe haven. After waiting a few years to find the cyclic price bottom, global economic and geopolitical problems are creating conditions for the emergence of a universal currency equivalent, to store and preserve wealth. There is now a clear need for gold. Investors are no doubt asking, now that the gold market has built momentum, what will continue to drive gold price. One answer, perhaps the most plausible to me, is unlike base metals or bulk commodities, the quality of gold supply did not substantially improve during the last cycle, which was the Super Cycle. Even though the record Super Cycle produced historically huge margins attracting unprecedented capital for exploration and development of gold deposits, few quality deposits were developed. Capital frequently focused on the low-hanging fruit by recycling existing higher cost or new but lower grade deposits, on the assumption that gold price would sustain production of all ounces rather than only those with a healthy margin from low cost production. Through no one's fault, that is the fundamental operation of the real capital market. Capital markets can only function in the meeting of sellers and buyers. They cannot trade if they cannot price. And pricing has to be based on some generally agreed metrics so the market can function in an orderly fashion. In the case of gold, the overwhelming metric is the ounce of reserve or resource in ground or in production. When there is more demand for gold equities, the market will supply more ounces of gold. It is easy to trade based on ounces, but it is a very different thing to distinguish quality of ounces in quantifiable measures. Even within a typical narrow vein gold deposit, the quality of gold in the vein (the grade) can vary substantially. So in a hot market, the effect is to rely largely on the quantitative metric of ounces of gold, or contained gold in the deposit. Yet once any ounces are traded, the market has its benchmark, on which the next trade will be based. The more liquid the market, the more trades seem to provide "fair" valuation of the underlying ounces, almost whatever that may be in terms of quality. So it was natural in the last cycle, given its unprecedented breadth and depth, the industry was in a rush to produce ounces. Given that gold is a truly rare metal, the most convenient – and economic – way to exploit it on a mass scale was to excavate what was previously discovered using a higher gold price assumption and consequently lower cut-off grades. That was the natural and inevitable dynamic on the supply side, especially in a long bull market which led to ineffective allocation of capital and the consequential lack of discovery of new large and good quality gold deposits. This Super-Cycle legacy, on the supply side, means that gold mine production cost curves will remain persistently high going forward. Provided demand remains strong however, the gold price should also stay high. At the start of the world’s biggest mining show, I wish all gold players well. Their success will hopefully provide the momentum for the rapid recovery of other metals in the mining sector. Happy PDAC, whatever mining sector you are in! (Written by Sandy Chim, President & CEO, Century Global Commodities Corporation)​