Gold Supply Heading for A Peak Unless Miners Ramp up Exploration Spending
The comments below are an edited and abridged synopsis of an article by Eric Ng
Gold may see a supply peak if miners don’t increase spending on exploration, according to Wood Mackenzie, a London-based natural resources consultancy. This supports analysts’ predictions that gold will head higher in the next two years, having gained 23% in the past 12 months as investors parked more money in the safe-haven asset.
The warning lends support to the views of gold bulls such as David Roche, president of London-based investment advisory Independent Strategy, who says that the gold price could touch $2,000 an ounce by year-end.
Citi analysts see that level being reached in two years’ time as fears over recession grow, a view echoed by Nolan Watson, chief executive of Canada-based Sandstorm Gold, which provides financing to miners.
Global miners’ exploration spending rose from $1.2 billion in 2010 to $1.5 billion in 2011, when the bullion price hit an all-time high of $1,838, and climbed to a record $2 billion in 2012.
Untapped miners’ gold reserves rose from 47,000 tonnes a decade ago to a high of 57,000 tonnes in 2016, before falling to 54,000 tonnes in the past two years.
With global industry-proved reserves sufficient to support only 11 more years of mining, miners have focused on growing their reserves via acquisitions instead of greenfield projects.
Global gold mining acquisitions jumped 83% to $21.8 billion last year, while deals made by Chinese buyers surged threefold to $3.8 billion.
Global gold mine output edged up 1.1% in the first half of 2019. That was a marked slowdown from an average growth in production of 3.1% in the five years to 2018, and 4.4% in the five years to 2013.
Production in China, the world’s largest gold miner, has declined due to environmental regulations. It fell by 2 to 4 percent in the first two quarters of 2019 on a year-on-year basis, extending declines of 6% in 2017 and 2018.
Forty-two percent of 2018’s gold demand was driven by investments and central banks. The gold price is therefore highly sensitive to US interest-rate expectations and the greenback’s movement against other currencies.