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Global gold production continues to rise, bringing new supply into the market. But as long as investor demand for the yellow metal remains skyhigh, it may not matter.
Gold consultancy GFMS launched its 2012 gold survey on Wednesday, and it took a bullish stance on prices despite a recent correction and a couple of worrying trends in the market.
One of them is that supply keeps going up. The survey showed that mine production hit a record high in 2011, rising 3% year-over-year to 2,818 tonnes (or almost 100 million ounces). It is the second straight year that production reached a new high, defying the “peak gold” theory that some commentators have thrown about.
Neil Meader, research director at Thomson Reutersowned GFMS, said the trend of rising production should continue in the short and medium terms.
“There are a significant number of projects to come onstream, and others to ramp up to full capacity. Unless something very unusual happens to the gold price that would shut down the more marginal or mature operations, I think we are looking at a couple more years of steady gains,” he said in an interview after a presentation in Toronto.
GFMS also found that total investment in gold actually declined last year in tonnage terms, though physical demand was very strong and the selling centred on the futures and over-the-counter markets.
The survey comes out amid a volatile period for gold. Prices are down about 15% from last year’s highs and daily fluctuations have been massive.
For gold prices to overcome the headwinds and keep rising, investors have to keep taking up the incremental ounces that hit the market.
GFMS expects them to do just that, at least for this year. It is looking for an average price of US$1,731 an ounce in 2012 (compared to US$1,658 today), with a peak that could potentially top last year’s record of US$1,920. Inflation fears, sovereign debt concerns and loose monetary policy are expected to be key drivers.
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