Although global gold production has grown by about 18% since 2005, South Africa’s output of the precious metal has almost halved in the same period.
The recently released Thomson Reuters GFMS gold survey for 2015 starkly illustrates the decline of local gold production – from 315 tonnes in 2005 to just 164 tonnes in 2014. Yet total global gold production reached record levels of 3 133 tonnes in 2014. This is an 18.2% improvement on production of 2 561 tonnes in 2005 and it is led by the world’s largest gold producer, China.
That country’s gold production has doubled from 230 tonnes in 2005 to 462 tonnes last year. South Africa remains one of the largest gold producing countries in the world and is ranked as sixth after Peru, the United States, Russia, Australia and China. Despite South Africa’s dwindling gold output, the continent’s gold mine production managed to grow by 1% in 2014, largely thanks to increased gold mine production in the Democratic Republic of Congo as new mines started up.
Although gold mining production expanded in 2014, this reflected a ramp-up of previously commissioned projects. It was also helped by all-in-costs that had dropped substantially (25%), although this was distorted by a large number of impairments which occurred in 2013. With this factor stripped out, average cash costs dropped by 3% to $749 an ounce, which reflected “advantageous foreign exchange rate movements and higher processed grades”, Thomson Reuters said.
Mining companies in emerging markets typically have operating expenses in local currency, but earn in dollars. “Output is expected to be flat in 2015 as this impact wanes, before starting a palpable decline,” the survey said. All-in-costs dropped by 25% to $1 314 an ounce in 2014 (the average spot price over the year was $1 266.40). Production may be up, but demand has slowed substantially and dropped 18% in 2014.
Demand for jewellery down
As the US economy recovered from the global financial crisis, gold experienced a lessening appeal as an asset class in 2014 as a result of lower perceived risk for systematic financial instability and continued low inflationary pressures, the survey said. Physical demand tempered “after excesses of 2013”, it said.
Lower demand for jewellery higher than 18 carats, and less demand for gold bars and coins has affected the supply / demand balance and pushed the market into a 204 tonne physical surplus for the year, the survey said. “The retail coin and bar market was the one that really suffered in 2014, slumping by 40% year on year, driven particularly by the Asian markets, reflecting the action of 2013 and unease over the price outlook,” Thomson Reuters said. Still, China and India between them accounted for 54% of the world’s jewellery, bar and medal demand in 2014.
The gold survey did not view this as much cause for concern: “Physical surpluses and deficits in the gold market are less relevant than those in the industrial metals, owing to the available level of above-ground gold stocks. We calculate that some 183 600 tonnes of gold have been produced in human history and much of this is still in circulation,” it said, noting that rather than annual supply and demand determining the price, it is the price that determines how much new physical supply and demand are attracted to the market each year.