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| Gold | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The US dollar denominated gold price continued its upward movement in the March quarter 2008, increasing by 18 per cent to an average of US$928 an ounce compared with the December quarter 2007. The strong investment demand that supported the gold price in the second half of 2007, as a result of global credit market instability, has continued into 2008. Further, investor interest has increased, reflecting a weakening US dollar and lower US interest rates. These conditions are expected to support the gold price in the short-term, leading to a forecast average price of around US$890 an ounce in 2008, a year on year increase of 28 per cent. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The US dollar denominated gold price to fall marginally in 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In 2009, the US dollar denominated gold price is forecast to average US$855 an ounce, around 4 per cent lower than the 2008 average, largely as a result of an expected reduction in investor interest in gold. Reflecting an assumed partial recovery in US economic growth and the likelihood of greater stability in global financial markets, investment demand for gold as a hedge against financial and economic uncertainty is expected to moderate during 2009. This, combined with rising demand for gold jewellery in emerging markets, is expected to provide support for the gold price in 2009. A major risk to this price outlook relates to the assumed recovery of world financial markets and US economic growth in the next 18 months. A further weakening in US economic growth could lead to a further depreciation of the US dollar and additional US interest rates cuts, increasing the attractiveness of gold as a hedge against uncertainty and placing upward pressure on the gold price. |
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| World mine production growth to increase in 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| World gold mine production in 2008 is forecast to decline slightly to 2453 tonnes. Modest increases in production in China, Canada and Peru are expected to be more than offset by lower production in South Africa, Indonesia and Australia. Mine production in China is forecast to increase in 2008 as some new mines, such as Sino Gold’s Jinfeng mine (5.6 tonnes per year), have commenced production in response to the higher gold prices. Zijin Mining, China’s largest mine producer, is expected to increase production by around 10 per cent in 2008. An increase in base metal production is also expected to result in higher gold output as a by-product. In Canada, increased production in 2008 from a number of mines, including Agnico Eagle Mines Goldex mine (5 tonnes per year), is expected to offset the effect on production of the closure of mines in Ontario, Quebec and British Columbia. In Peru, the commissioning of Newmont’s new gold mill is expected to enable the processing of higher grade ores from its Yanacocha gold mine. Electricity supply disruptions in South Africa resulted in mines operating below capacity during the first quarter of 2008. The state-run energy company, Eskom, has advised problems are expected to continue throughout 2008. As a result, South African mine production is expected to fall by around 10 per cent in 2008. A fall in mine production is also forecast for Indonesia where the world’s largest gold producing mine, Grasberg, is expected to produce around 40 tonnes in 2008, down 40 per cent year on year as a result of mining lower grade ores. In 2009, world gold mine production is forecast to grow by more than 4 per cent to 2559 tonnes, the highest since 2003. Increases are expected from around the world including Australia, North America, China and the Russian Federation. This forecast growth in production reflects the start up of numerous projects developed over the past few years. In addition, as some global producers return to mining higher grade ores, production from mature mines is expected to increase in 2009. |
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| Official sector sales to fall in the short-term | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net gold sales by the official sector in 2008 are forecast to fall by around 16 per cent to 405 tonnes, reducing growth in gold supplies to the market. This fall is expected mainly as a result of lower sales by central banks that are signatories to the European Central Bank Gold Agreement (CBGA). The CBGA places a collective limit of 500 tonnes a year on the quantity of gold that the 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 2009. Official sector sales are forecast to decline further in 2009, to 385 tonnes, partly as central banks reduce sales in order to meet publicly stated sales targets over the five year lifetime of the CBGA which ends in September 2009. |
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| High and volatile prices effect gold fabrication demand in 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Jewellery fabrication, the main element of gold fabrication demand, declined in the second half of 2007 as a result of the markedly higher gold prices and increased price volatility. In 2008, jewellery fabrication is forecast to decline, resulting in gold fabrication consumption falling by a further 5 per cent to 2908 tonnes. The slowdown in jewellery fabrication demand is expected to be most evident in the price sensitive market of India where lower retail markups mean volatility in the gold price will be fully transmitted to domestic jewellery prices. Additionally, export oriented jewellery fabrication in India and the Middle East is likely to decline in response to slower economic growth in Europe and North America. However, jewellery fabrication demand in China is expected to grow strongly, reflecting fast-rising incomes. The forecast falling gold price is expected to result in a modest increase in global jewellery consumption in 2009. More importantly, an expected reduction in price volatility could then stimulate demand for gold in India and the Middle East. As such, gold fabrication demand is forecast to rise by around 6 per cent in 2009 to 3077 tonnes. |
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| Producer dehedging to decline in 2008 and 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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, with the rate of gold repayments to central banks exceeding new producer hedging, imposes upward pressure on the gold price through reducing gold supplies to the spot market. An estimated record of 446 tonnes of gold was reduced from outstanding hedge positions of gold producers in 2007, primarily as a result of dehedging from Newcrest Mining, Barrick Gold and Newmont Mining. With the size of remaining hedge books diminishing, dehedging is forecast to fall to 320 tonnes in 2008 and 200 tonnes in 2009. Angologold Ashanti is expected to contribute most to dehedging in 2008, with the company proposing a reduction in their hedge book of around 130 tonnes. |
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| Development projects to stimulate Australian gold production | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australia’s gold mine production is estimated to have fallen by around 7 per cent to 231 tonnes in 2007-08. In the third quarter of 2007-08, Australian gold production is estimated to have totalled 51.5 tonnes, the lowest since the June quarter 1989. This fall reflects events such as the closure of Norilsk’s Thunderbox project and the placing on care and maintenance of Apex Minerals’ Wiluna project and Harmony Gold’s Mount Magnet project. Also contributing to this decline was lower production from several new projects such as Mercator’s Meekatharra project and Citigold’s Warrior mine. Changes made to mine sequencing by several major producers, partly in response to the higher gold price, has resulted in the mining of lower grades and lower production at numerous larger mines. In 2008-09, Australia’s gold mine production is forecast to rise by 11 per cent to 256 tonnes when a number of new medium to large scale projects are expected to begin commercial production. These include the Boddington joint venture redevelopment in Western Australia (averaging 26.4 tonnes per year), St Barbara’s Gwalia Deeps expansion (6.2 tonnes), Apex Minerals Wiluna redevelopment project (6.2 tonnes), Avoca’s Higginsville project (5.9 tonnes), Oxiana’s Prominent Hill project (3.6 tonnes) and Dioro Exploration’s Frogs Leg underground project (2.6 tonnes). Gas shortages associated with the fire at Varanus Island in early June 2008 have the potential to affect gold production in 2008-09, however the effect is uncertain at this stage. Reflecting changes in Australian mine production, the volume of Australian gold exports are estimated to have fallen by around 5 per cent to 381 tonnes in 2007-08, but are forecast to rise by 6 per cent to 404 tonnes in 2008-09. The trend for export volumes to remain above domestic gold production in Australia is expected to continue in the short-term as gold dore (up to 99 per cent pure) and scrap are sourced from overseas and refined into gold bullion. The value of Australian gold exports in 2007-08 is estimated to have risen by 6 per cent to $11 billion. In 2008-09, Australian export earnings from gold are forecast to grow by around 14 per cent to $12.5 billion as export volumes rise in response to increased Australian mine production, offsetting the forecast marginal fall in the US dollar denominated gold price. |
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