World Gold Supply Update

Global markets remained under pressure. Locally the Anglo American annual results disappointed investors with the suspension of the dividend. The price fell almost 16%. This dragged the local JSE down. The one area that remained firm on the local market was gold, which moved close to the $1000/oz level – currently around $996/oz.

We discussed the demand side of gold yesterday. Let’s look at the supply side.

The World Gold Council reckons that the best estimate of gold mined over history is approximately 158 000 tonnes, of which around 66% has been mined since 1950’s. As can be seen from the table below annual mine production is coming in at around 2500 tonnes per annum.

While gold is mined on every continent, South Africa has been the dominant producing country in the world, producing 1000 tonnes per annum in the 1970’s. This has steadily declined. Until 2006 SA was the world top producer. China overtook SA in 2007 and it looks like USA overtook SA in 2008.

SA produced 247,2t in 2007 and the 2008 number was down 16%.

The statistics from the WGC reflect global mine production slowing to 2476 tonnes in 2007 and an annualised 2388 tonnes in 2008. From this they subtract producer hedging (i.e. gold sold forward in previous years) to arrive at mine supply.

Central banks and government sponsored organisations hold around 1/5 of global above ground stock of gold as a reserve asset. This percentage is decreasing steadily. These are largely owned by central banks in Europe and US.

Central Banks have been net sellers in recent years and from 1999 the bulk of these sales were covered under the Central Bank Agreement on Gold, which put a cap on the annual total sales by central banks. There does appear to be a slowdown in the sales from this sector, even as the price gains ground.

Classically the Bank of England auctioned off a large portion of its gold holdings in 1999 to “Restructure the UK’s Reserve Holdings”. It did this at the bottom of the gold price.

Then gold is also supplied as recycled gold. This comes from fabricated products and is melted down, refined and reused. Most recycled gold comes from jewellery, smaller amounts from electronic components and some from investment bars and coins.