World gold mine production is set to drop by three percent in 2002, the first fall since 1995, while depleting reserves and falling production could lead to a longer-term decline in output, a leading commodities consultancy said on Tuesday.
In its half-yearly report, the London-based Gold Fields Mineral Services (GFMS) group said global mine production fell by 63 tons or five percent in the first half of the year to 1 216 tons.
The fall was mainly the result of declining production in Indonesia and the United States, which offset rising output in other countries such as Russia and Peru.
GFMS managing director Philip Klapwijk said the fall in output at the Grasberg mine in Indonesia, the world’s largest single gold-producing mine, was largely temporary and global mine output could pick up slightly next year.
But he added: ”Depleting reserves, in particular, at the mature operations in North America, and a marked decline in new production timetabled to come on stream, should lead to a longer term fall in global mine production beginning in 2004.”
The consultancy also forecast that the gold price would average $316 an ounce through in the second half of 2002.
Prices stood at $323,25 an ounce on the London Bullion Market on Tuesday morning, against $323,05 on Monday afternoon.
”The market is in some ways finely balanced. But we could easily see investors upsetting this, especially if Middle East tensions worsen, or a major economic shock occurs,” said Klapwijk.
”In that case some investors might look seriously at gold as a possible safe haven.
”On the other hand there’s a small, though not negligible, risk that existing investors in gold could become disenchanted with its recent price performance and get out of their positions,” he added.
The report estimated that investment demand almost doubled in the first half of 2002 from the year-earlier period to 182 tons, though it said this represented just under two billion dollars (euros), which it described as ”tiny compared to other investment flows during the same period”.
It said many investors had sought exposure to the gold price by buying mining shares instead of bullion.
Producer de-hedging — the unwinding of forward sales — on the other hand is estimated to have contributed a record 232 tons of demand in the first half of this year, against 35 tons in the year-earlier period.
The report said producers were de-hedging because prices were higher on the spot market than the futures market, gold companies were optimistic about the outlook for prices and shareholders were pressing for the move. – Reuters