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Crops |
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Livestock |
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Energy |
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Metals |
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| Gold | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Andrew Schultz |
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| Largely reflecting a fall in investment demand for gold, the average gold price fell 3 per cent to US$871 an ounce in the September quarter of 2008. While the gold price fell by less than base metals prices in this quarter, indications of slowing global economic growth combined with a strong appreciation of the US dollar reduced the investment appeal of gold as a hedge against both inflation and the US dollar. Offsetting this to some extent, increased global economic and financial instability raised the appeal of gold as an alternative store of value and led to an increase in retail investment in gold bars, coins and other products. Similarly, jewellery demand rose in the large markets of India and China, where jewellery is often considered as an investment. Further rises in the US dollar during October and November led to the price of gold falling to less than US$750 an ounce. However, heightened uncertainty relating to both the expected scale of the US Government’s financial rescue plan and the US$20 billion injection of capital into the large US financial institution Citigroup, led to a rise in the price of gold to more than US$800 an ounce in late November. For 2008 as a whole, the gold price is estimated to average around US$870 an ounce, an increase of 25 per cent from the 2007 average price. |
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| Gold price to fall in 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In 2009, the US dollar denominated gold price is forecast to fall by 7 per cent to US$810 an ounce. Weaker growth within the global economy is expected to be a major factor contributing to this forecast fall, as investment demand for gold as a hedge against inflation moderates. However, the extent of the price fall will be constrained by the assumption the US dollar will depreciate during the year, as a result of sharply weaker activity in that economy. Furthermore, ongoing instability within global financial markets will provide encouragement for retail investors to purchase gold as a lower risk asset, providing additional support for the gold price. Gold jewellery demand in India and China is also forecast to be robust, providing ongoing support for the gold price. The duration and extent of the assumed global economic slowdown and the period of instability associated with global credit markets pose risks for the gold price over the outlook period. Extended periods of financial market instability could increase investment demand for gold and, in turn, could place upward pressure on the gold price. Alternatively, should the US dollar continue to strengthen against other currencies, the price of gold may be subject to greater than forecast downward pressure. |
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| World mine production to increase in 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| World gold mine production in 2008 is estimated to have fallen by around 3 per cent to 2400 tonnes. Continuing the downward trend of recent years, production in 2008 is estimated to have been 9 per cent lower than the peak in world gold mine production of 2640 tonnes achieved in 2001. Large falls in production are estimated for South Africa (down 12 per cent), Australia (down 12 per cent), Asia (excluding China, down 10 per cent), Canada (down 6 per cent) and the United States (down 5 per cent). Partially offsetting these falls, production in China is estimated to have risen by around 7 per cent to 300 tonnes in 2008. In South Africa, electricity supply shortages which have persisted throughout the year have affected all local gold producers, contributing to the decline in gold production in 2008. Production in North America and Australia has fallen as a result of the mining of lower ore grades, changes to mine sequencing, power shortages and unscheduled mine disruptions. In Indonesia, the scheduled mining of lower grade ores has contributed to an estimated 50 per cent decline at the world’s largest gold mine, Freeport-McMoRan’s Grasberg. In 2009, world gold mine production is forecast to rise by 3 per cent to 2476 tonnes. This increase reflects the expectation of some recovery in the grades of ores mined, particularly in Indonesia, and an assumed reduction in unscheduled mine disruptions. Reflecting China’s prospectivity, new projects, such as Sinogold’s White Mountain project, are forecast to lead to an increase in China’s mine production. However, the introduction of new projects in some developed countries is expected to be delayed by credit constraints and higher risk profiles associated with ongoing global financial and economic instability. |
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| Official sector sales to fall in 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales of gold by the official sector are estimated to have fallen by 40 per cent to 290 tonnes in 2008. This fall reflects estimated lower sales by central banks which are signatories to the European Central Bank Gold Agreement (CBGA). Between July and October 2008, only around 60 tonnes were sold as part of the CBGA. The CBGA places a collective limit of 500 tonnes a year on the quantity of gold that signatories, comprising 18 European central banks including the European Central Bank, are permitted to sell from their reserves. The current CBGA began in 2004 and is set to expire in September 2009. Over the outlook period, some European central banks, such as those of France, Germany and Switzerland, are expected to limit sales to meet publicly stated sales targets over the term of the agreement. Consequently, net official sector sales are forecast to decline by a further 24 per cent to 220 tonnes in 2009. The possibility of significant sales from entities with large reserves of gold, such as the German and Italian central banks and the International Monetary Fund, poses an upside risk to the forecast of net official sector sales in 2009. |
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| Gold fabrication demand to rise in 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gold fabrication consists of gold used in jewellery, electronics, dental applications, medals, coins and other industrial uses. As a result of high gold prices in 2008, gold jewellery demand, the largest component of gold fabrication, is estimated to have fallen to its lowest level since 1989. This contributed to fabrication consumption falling by an estimated 10 per cent to 2776 tonnes in 2008. In 2009, fabrication consumption is forecast to rise by 5 per cent to 2873 tonnes. In response to lower average prices and reduced price volatility, gold jewellery demand on the Indian sub-continent and in the Middle East, which together typically comprise around half of global gold jewellery demand, is forecast to strengthen in 2009. While gold jewellery consumption in developed economies has been falling significantly in recent years, deteriorating global economic conditions are expected to reduce demand even further in 2009. |
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| Producer dehedging to fall over the outlook period | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Producer hedging involves gold producers borrowing gold from central banks and selling it on the spot market in order to reduce exposure to the risk of lower gold prices at the time of actual production. As a result, future mine production of gold is effectively brought forward. Dehedging, through the buying back or unwinding of these hedged positions, has largely occurred because of producers’ expectations of an increasing gold price. Net dehedging, occurring when gold repayments to central banks exceed new producer hedging, imposes upward pressure on the gold price by reducing gold supplied to the spot market. In 2008, net dehedging is estimated to have fallen to 320 tonnes, largely as a result of dehedging by Barrick Gold and Anglogold Ashanti. With the size of the remaining industry hedge book now substantially reduced to around 500 tonnes, gold producers are effectively exposed to the spot gold price. There remains limited scope for further substantial reductions and, as such, dehedging is forecast to fall to 200 tonnes in 2009. |
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| Australian gold production to fall marginally in 2008-09 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australian gold production is forecast to fall by 1 per cent to 224 tonnes in 2008-09. Several large mines, such as Newcrest’s Telfer mine, are forecast to increase production modestly as higher grade ores are mined and production recovers from the disruptions caused by gas shortages in early to mid-2008. However, these increases are forecast to be more than offset by significant decreases in production from other mines including Newcrest’s Ridgeway mine and Anglogold Ashanti’s Sunrise Dam. Growth in production from small and medium sized producers is expected to be largely flat in 2008-09. The decline in production associated with a number of Australian gold producers entering administration or deferring operations is likely to be more than offset by increases in production from new projects. Avoca’s Higginsville operations (averaging 5 to 6 tonnes a year), St Barbara’s Gwalia Deeps (6.2 tonnes), Apex Mineral’s Wiluna project (6.2 tonnes) and Lihir Gold’s Ballarat East (6.2 tonnes) are all expected to approach commercial levels of production during the year. However, several operations undergoing feasibility assessments have delayed start up dates in response to difficulties in obtaining suitable finance and the uncertain global economic outlook. The volume of Australian gold exports is forecast to rise by 6 per cent to 406 tonnes in 2008-09. This rise partly reflects a continuation of the upward trend in the quantity of overseas sourced gold dore (up to 99 per cent pure) and scrap which is being shipped to Australia, refined into gold bullion and then exported. The value of Australian gold exports in 2008-09 is forecast to rise by 37 per cent to $14.9 billion as a result of forecast rises in export volumes and the Australian dollar gold price, based on the assumption of a markedly lower domestic currency against the US dollar. |
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