World Mineral Production - NERC Open Research Archive - Natural ...

GOLD
Characteristics
Gold is a soft, malleable, bright yellow metallic element
unaffected by air or most reagents. Gold occurs in its native
state or in combination with other elements such as silver.
Gold is highly valued as an asset or investment commodity
and is extensively used in jewellery and for industrial
applications.
Uses
Gold is a long-established, universally accepted store of value,
widely traded internationally. Gold is seen as a safe haven in
times of financial and political uncertainty since it is not at risk
of becoming worthless unlike currency and other assets. Gold
is increasingly being used to diversify investment portfolios,
as a currency and as a hedge against inflation. The centre of
world gold trading is the London Bullion Market, on which
the gold price is fixed twice daily. The fix is used as a
benchmark for pricing the majority of gold products and
derivatives throughout the world's markets. Jewellery
production accounts for the largest use of gold, representing
around 70 per cent of total demand (World Gold Council,
2006a). In Asia and the Middle East gold jewellery is
commonly bought as an investment or store of value. Gold has
a wide range of industrial uses, dominated by the electrical
sector, in which it is valued for its excellent thermal and
electrical properties. A significant amount of gold is consumed
in dentistry and it also has medical applications. Research is
continually finding new applications for gold including
catalysts and in nanotechnology.
World production in 2006
Gold production is recorded in more than 80 countries and
several countries produce substantial quantities of gold from
small operations which are not recorded in official statistics.
Seven countries produce more than a 100 000 kilograms
(metal content) of gold annually, or more than half of world
mine production. World mine production, which had been
rising for around 20 years, peaked in 2000 at 2560 tonnes.
Annual mine production in 2006 was 2310 tonnes, a fall of
250 tonnes in six years. High gold prices in the late 1970s and
early 1980s resulted in steadily increasing global production to
the peak in 2000. Production subsequently levelled out and
began to decline reflecting the low gold price between 1997
and 2001, investor uncertainty resulting from the Bre-X
scandal (a major mining fraud) and diminishing reserves. The
depressed gold price led to a lack of exploration and
development during this period, resulting in very few new
discoveries and depletion of reserves. Following this period of
declining exploration budgets, which reached a low in 2002,
exploration expenditure began to increase in response to
dwindling gold reserves, higher gold prices and increasing
investor interest. Global mine production did not start to
increase until 2005 when it reached 2440 tonnes, reflecting the
significant lag time required to bring projects into production.
South Africa has dominated world gold production for many
decades and in 1970 was producing over 1000 tonnes
annually, equating to 60 per cent of world production. South
African output has since been declining whilst many other
countries have expanded production. Despite this, South
Africa remains the world’s largest gold producer, producing
272 tonnes in 2006, or 12 per cent of world mine production.
The decline in South African gold production is attributed to
the mature nature of the mines and declining reserves, high
production costs and accidents. China’s gold production has
increased dramatically in recent years and China closely
follows South Africa as the world’s second largest gold
producer in 2006, with an output of 247 tonnes. China’s gold
production has increased by 22 per cent in the last five years
and is expected to exceed South African production in the near
future. The Chinese Government has been highly supportive of
gold exploration leading to a rapidly expanding resource base
(Mining Journal, 2007a). The traditionally dominant gold
producers of South Africa, Australia, USA and Canada are
rapidly losing ground to new producers that have become
increasingly important in recent years. Gold output of these
countries declined by 8, 6, 5 and 13 per cent respectively in
2006. Indonesia has experienced an exceptional rise in
production from only three tonnes in 1985 to 143 tonnes in
2005, largely from the giant Grasberg mine (World Gold
Council, 2006b). Notably Indonesian production fell by more
than 57 tonnes in 2006 to 85 tonnes as a result of a sharp
reduction in the ore grade at Grasberg (O’Connell, 2007a).
Peru, which is now the world’s fifth largest gold producer, has
increased production from 24 tonnes in 1992 to 203 tonnes in
2006, thanks to new large-scale mines such as Yanacocha.
Prices
The gold market is characterised by substantial above-ground
reserves, held mainly by banks. If some of these are released
into the world market the gold price may be significantly
affected. The gold price can be volatile but has strengthened in
recent years due to declining mine output, increasing jewellery
demand, extensive speculative activity and new gold
investment products, devaluation of the US dollar (which
underpins the gold price), lower interest rates and geopolitical
tensions. All gold prices quoted are based on the London
afternoon daily price, in US dollars per troy ounce, as quoted
by Metal Bulletin.
Following a period of depressed gold prices between 1987 and
1999, when the price of gold fell by 40 per cent the gold
market has significantly improved in recent years. Since 2001,
the gold price has more than doubled, rising from an average
annual price of US$271per ounce to US$695 per ounce in
2007. The gold price continued its upward trend during 2006,
exceeding US$600 per ounce in April, its highest level since
1980, driven by strong investor demand, a weak US dollar,
strong oil prices and geopolitical tensions between the US and
Iran. Sustained investor and speculator activity pushed the
gold price to a 26-year high of US$725 per ounce in mid-May
2006. The price fell significantly during June to US$567, a fall
of 22 per cent as the US dollar strengthened and investors sold
gold into the market. The gold price rebounded during July as
renewed investor interest pushed gold in to the mid-600
dollars per ounce range. The price subsequently fell in October
to US$560 before rebounding to US$632 per ounce at yearend,
with an average annual price of US$604 in 2006.
Following a weak start to 2007 the gold price climbed to
US$685 per ounce at the end of February, supported by
investment demand in response to record oil prices and
geopolitical and inflationary concerns. Investment demand and
a perceived supply-demand shortfall continued to drive gold
prices which climbed to above US$690 per ounce in April.
Prices fell to US$642 by the end of June as a result of central
bank gold sales, a strengthening US dollar and interest rate
concerns (Rumley, 2007). The gold price increased during
July, peaking at US$684 per ounce as the US dollar dropped to
record lows against the pound and Euro (Frei, 2007). During
August concerns over the US sub-prime lending market and a
growing credit crisis caused widespread selling of financial
assets including gold, forcing the gold price below US$660 in
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