Gold: general trends

 

According to the World Gold Council (WGC) in the first quarter of 2007 the demand for gold at the world gold market grew by 4% up to 831,7 tons, which is in money terms equal to the growth of 22% up to 17,377 billion US dollars.[1] At the same time the consumption of gold jewelry grew up to 12 billion US dollars, thus doubling for last four years.[2]

Despite the fact that at present the world demand for gold exceeds the supply, experts do not expect any significant rise in gold prices. According to    the Financial Forecast Centergold will keep going down, in August its price may go down bellow 629 US dollars for an ounce and in October the price is likely to fall further to 607 US dollars.

More optimistic are experts from the Toronto's National Bank Financial whobelieve that an average price in 2007 will be at the level of 675 US dollarsfor an ounce, however, provided that the “tension in the Middle East” remains.

A significant part of the consumption falls into the jewelry industry:inthe first quarter purchases grew by 17% up to 572,8 tons (in money terms the growth was 38% up to 11,968 billion US dollars).

Expenses of the World community for gold in jewelries and other parameters of the gold market in 1996-2006

	1996	1998	2000	2002	2003	2004	2005	2006	2007**
Price, US dollar/gram	12,47	9,45	8,98	9,97	11,69	13,18	14,3	19,43	20,5
World gold mining Au, ton	2265	2498	2541	2515	2534	2435	2520	2530- 2540	2560
World consumption Au, ton	3523	4107	4009	3975	4153	3846	4036	3900*	3800**
Use of Au by jewelry industry, ton	2830	3164	3196	2653	2477	2613	2712	2400*	2250**
Share of “jewelry gold”, %	80,3	77	79,7	66,7	59,6	67,9	67,2	64	Nearly 60
Cost of Au in made jewelries, billion US dollars	35,3	29,9	28,7	26,5	29	34,4	38,8	46,6	46,1
*Estimate
**Forecast

 

 

The market entry of investment funds which are new participants at the international market (since 2003 “gold “StreeTracks Gold Trust and in 2006 “silver” iShares Silver Trust) specialized in investments in precious metals (gold and silver) has contributed to the demand growth and also maintaining prices for metals at a considerably high level.

These funds’ shares (ETF - exchange-traded funds) are traded by the main world stock exchanges, they are secured by gold or silver which are stored in a special trustee bank. At present the gold portfolio reserves are already estimated at 599 tons. ETF secured by platinum are expected to enter the market in 2007.

Gold occupies the top positions as an investment metal. The demand-supply balance gives a quite stable basis to the gold market. It is not the first year that gold has been a popular instrument for private investors willing to diversify their portfolios.   

In 2006 the investors’ demand grew by 7 % (up to 637 tons) in physical terms, by 45 % in dollar terms, mainly due to the Exchange Traded Funds and similar funds whose cost is pegged to gold. 

According to preliminarily estimates in 2006 the investment demand for gold reached 680 tons (against 600 tons in 2005), the maximum demand was of coins, whose sales grew by 15%. As far as the supply is concerned, according to experts in 2006 the world metal mining from the interior of Earth was reduced, gold sales to central banks decreased, but at the same time reworking increased. Experts foresee that in 2007 the most attractive investments still will be in gold.      

According to WGC experts the main contribution to the World demand ebullience was made by jewelry buyers in South-East Asia. As early as in February sales to India (by 50%) and China (by 31%) considerably increased.

Despitethe demand growth metalproducers are not ready yet to adequately increase the gold supply[3]. In the first quarter the supply declined by 2% down to 808 tons. Meanwhile, gold mining grew by 1% up to 580 tons; however, metal fabrication from secondary raw materials was reduced. 

Experts pin their main hopes on new largest deposits which are due to be placed into operation in 2008-2010[4].

New largest deposits where construction completes in 2008 - 2010

Deposit , country	Type of deposit	Total reserves, ton	Resources, ton	Planned annual gold mining, ton
Oyu Tolgoi, Mongolia	Gold-containing, Porphyry copper	629	432	Approximately 20
El Morro, Chile	Gold-containing, Porphyry copper	255		10-12
Cerro Casale  Chile	Gold-containing, Porphyry copper	850		30
Tampakan, Philippines	Gold-containing, Porphyry copper	453 (with resources)	8-10
Salobo, Brazil	Gold-containing, Porphyry copper	Approximately 400		15
Chapada, Brazil	Gold-containing, Porphyry copper	97		5-6
Sossego, Brazil	Gold-containing, Porphyry copper	99		6-7
Group of deposits, Cadia  Australia	Gold-containing, Porphyry copper	550	560	15-17
Total	Gold-containing			Approximately 100
Telfer, Australia	Gold ore, stratified, in  sand rock and shaly formation	513		20-22
Veladero, Argentina	Gold silver ore, in rocks of volcano tectonical structures	398		20-22
Ogofo, Ghana	Gold ore, in sand rock and shaly formation	379	52	15-17
Akyem, Ghana	Same	196		10-13
Donlin creek, Alaska, USA	Gold ore, in friable rocks of intrusive bosses	808		30-41
Las Cristines-Brisas,Venezuela	In metavolcanic Archaean greenschist belts	972	146	14-25
Total	Gold ore only		Approximately 110

The supply reduction concurrently with the world and internal demand growth for precious metals has become the main factor encouraging the vigorous growth of gold mining in China. 

According to the deputy director of China National Gold Group Corp U. Tszunun China as early as in 2007 may become the second world largest gold mining country, leaving behind the USA. In 2006 the volume of gold mining in China was 240 tons, in the USA – 260 tons, in South Africa – 270 tons. Within four months of 2007 gold mining in China increased by 13,89%, up to 77,75 tons. The annual general growth is expected to be not less than 8,3%. (In the USA gold mining grew by 4% in 2006).

It is noticeable that with the vigorous development of gold mining inside the country, Chinese authorities announced the interest of China National Gold Group Corp. to participate in joint projects in the territory of Myanmar, Vietnam, Russia, Central Asian countries, though no specific plans have been so far made public.   

Meanwhile, according to some Russian experts the most promising region for China is Africa where Beijing has reinforced its positions and may expand gold mining in a long-term basis. 

Concurrently the Chinese authorities are taking steps to liberalize its national gold market by allowing foreign banks to operate in the country. The People’s Bank of China (Central bank) for the first time approved the admittance of five foreign banks to Shanghai gold stock exchange: HSBC, Standard Chartered Bank, UBS, Bank of Nova Scotia and Societe Generale.The Central bank has also announced its intention to mitigate gold export/import regulations.