There is a growing possibility that the price of gold will break out of the US$256-to-$273-per-oz. range witnessed in the first quarter, according to Gold Survey 2001, published by U.K.-based Gold Fields Mineral Services (GFMS).
The survey suggests that a U.S. recession followed by a drop in the value of the greenback would push up the price of the precious metal.
The collapse in producer hedging in 2000 failed to bring about a dramatic recovery in prices because the fall was offset by a selloff, mainly in Europe, of gold bars and coins. Hedging began to decrease in September 1999, when the central banks began flooding the market with gold and mining companies projected over-optimistic prices.
The strength of the U.S. dollar encouraged many investors to convert their gold to cash and fostered a return to hedging in the fourth quarter. Both factors contributed to pressure on the gold price. The European Agreement on Gold, which put a cap on gold sales by the central banks, brought about greater stability and has helped reduce uncertainty in the market.
GFMS forecasts that mining companies will increase their hedge books moderately in 2001, and that the rate at which investors shed their gold will slow.
The survey goes on to warn that if a U.S. recession spreads to East Asia and the Middle East, the demand for items made with gold, especially jewelry, will diminish.
The survey’s findings include the following:
– Global mine production in 2000 rose by less than 0.5% to a record 2,573 tonnes.
– Cash costs last year fell US$10 per oz. to an average of US$186 per oz., whereas total production costs fell 7% to US$238 per oz. Much of the decline was due to weak currencies, particularly in Australia and South Africa. Meanwhile, U.S. cash costs rose 3%.
– Producer hedging provided 506 tonnes of supply in 1999, compared with 10 tonnes of demand in 2000.
– A net investment of 170 tonnes in 1999 switched to a net disinvestment of 291 tonnes in 2000.
– Total gold demand fell by more than 200 tonnes to 3,946 tonnes in 2000.
– Total demand for things made with gold fell in 2000 but only by a modest 5 tonnes to 3,739 tonnes. The greatest change was in coin fabrication, which collapsed to 46 tonnes last year from 133 tonnes in 1990. At the same time, gold use in electronics was up an impressive 15%.
The publication sells for US$325 per issue. To order a copy or for more information, contact GFMS at +44 (0)20 7539 7820. E-mail: gold@gfms.co.uk
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