A lot of investors pushed the panic button in gold this week.

Some of the excitement was driven by the gold price. Which pushed back toward $1,300/oz yesterday, before falling back to a close just above $1,280.

But another event drove a lot of speculation about higher gold prices: a report by ANZ bank, which pegged global gold production at its lowest level in nearly a decade.

ANZ noted that worldwide gold production fell 2% during the first five months of 2017. With output hitting its lowest mark since the financial crisis of 2008.

In many ways, that makes sense. Gold prices were flying at the time of the GFC, above $1,700/oz — having since declined by as much as 45% from the peak.

That price drop all but halted development of new mines — and gutted worldwide exploration for new gold deposits. Ensuring a production decline was in the cards as the cuts trickled through the system over the last few years.

But the mood has turned decidedly more optimistic since gold’s big run from $1,050 to $1,300 last year. With many investors betting on further gains for the yellow metal.

Is this really a bottom? Global data on the gold mining sector gives us some clues.

The chart below shows the global cost curve for gold mining — in terms of all-in costs. That includes operating costs, sustaining capital at mines, and development costs to bring new ounces of production online.

The global gold cost curve is not far below current gold prices

Note how today’s prices (red dotted line) are not much above production costs for a majority of mines. The average mine pays $1,083 to pump out an ounce of gold, leaving a couple hundred dollars of profit at current rates.

That equates to under a 20% profit margin. Not terrible, but not likely to spur a lot of new mine development.

Those thin margins explain why few new gold mining projects have been commissioned in recent years. But does that suggest production will continue to slide?

That’s less clear. Mainly because prices today are not driving existing mines out of business.

Just look at the cost curve below — which shows only cash operating costs at global mines. A metric that runs closer to $600 per ounce average.

Cash costs for global gold mining average around $600 per ounce

That means the majority of operating mines are doing fine at today’s gold prices. The reason we’re not hearing about gold mines being shuttered, the way we were in base metals the last few years (prior to the recent surge in prices for those metals).

All of this suggests the dominant force in curtailing gold production right now is entropy. Depletion of existing reserves and decay of infrastructure at mines that can’t afford to splash out on capital items.

That’s a much slower process in restricting supply than active mine closures that happen at deep bottoms in commodities. So while there may be some upward pressure on the supply-demand balance creeping into the market, we’re not likely to see the kind of explosive dislocations that trigger huge price swings.

That doesn’t mean gold can’t see a big price run. We’re only talking here about the supply side of the equation — if demand surges, prices will move up.

But the argument that gold prices are depressed to the point of capitulation isn’t clear yet in the numbers. The market looks stressed, but not desperate.

It’s also important to note cost curves can change. If mining activity picks up (the way it seems right now), inflationary pressures can drive up costs and eat into profits. Watch for more data — the best source being quarterly figures from gold majors on operating and all-in costs.

Here’s to looking down the curve,