Gold's Fundamental Supply Picture

Richard (Rick) Mills

Ahead of the Herd

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As a general rule, the most successful man in life is the man who has the best information

Demand

Global gold demand was 964t in Q2 2014, significantly reduced from the record high in Q2 2013.

ETF outflows slowed sharply.

Central Banks continued to buy gold for the 14th consecutive quarter in Q2 2014. CB’s purchased 118t in Q2 2014 up 28% over Q2 2013. The announcement of a fourth CBGA in the second quarter also reiterated that sales will not be forthcoming from some of the largest holders.

Jewellery demand weakened year-on-year, but the broad, 5-year uptrend remains intact. Jewellery accounted for 53% of gold’s global demand and is by far and away the anchor of gold’s market.

World Gold Council

Supply

China is the largest producer in the world, accounting for around 14 per cent of total production. East Asia as a whole produces 21 per cent of the total newly-mined gold. Latin America produces around 18 per cent of the total, with North America supplying around 15 per cent.

Around 19 per cent of production comes from Africa and 5 per cent from Central Asia and Eastern Europe.

Recycling accounts for around one third of the total supply of gold.

Thanks to the World Gold Council you now know where gold comes from, whose buying it and what they use if for.

Deeper into the #’s

Gold comes from three sources:

• Central Banks – sales stopped and are staying stopped.
• Recycling – mostly flat in 2014.
• Mining

Global gold demand across all sectors in 2013 was 4,065.60t.

The top 2013 six gold producing countries – China 420t, Australia 227t, U.S. 226t, Russia 220t, Puru 150t, South Africa 145t and Canada 120t – together produced 1,653.00t.

Other top gold producing countries include Mexico 100t, Ghana 85t, Brazil 75t, Indonesia 60t and Chili 55t.

According to GFMS estimates total gold mine supply reached 2,982 tonnes in 2013, up 4.1% from 2012.

High grading & refocusing

Two mostly unrecognized influences are at work in the global gold market, unsustainable production levels and a shifting of demand focus.

Many miners are processing greater quantities of ore to maintain revenue and contain costs at today’s lower gold prices.

It’s also very possible some companies are focused on solely mining the higher grade portions of their mines. The result is higher production and lower costs over a short term, but it is not sustainable and means a much higher gold price is needed to economically mine the lower grades left.

The focus of the gold industry is shifting east.

The key driver of gold’s price over most of the last decade was institutional investors buying gold bullion through exchange-traded funds (ETF). That changed in 2013 with investors dumping 800t or 31m ozs.

On the other side of the trade was an enormous physical, almost insatiable, gold demand coming from Asia. According to GFMS China imported unprecedented amounts of gold from the rest of the world and became the world’s largest consumer of jewellery last year, with demand rising 30% to 724 tonnes.