Gold production reaches 12 year high

Australia’s gold production has reached a 12 year high on the back of soaring gold prices.

The metal, which has been 2016’s best performing asset, saw a full year production of 285 tonnes last year, two more tonnes than 2014 and the highest levels since 2003, according to Surbiton Associates.

The metal has risen 15 per cent in value to date, as market expectations of the US Federal Reserve holding off on a rate rise drive more investors to gold, while a weaker Australian dollar supports increased production.

Gold reached $1778.65 earlier this month, the highest point since 2011, although it slipped to $1223.46 as of Friday.

“If you factor higher prices and tighter cost containment into the overall equation, margins have increased,” Surbiton director Sandra Close said.

“Much of the local gold sector is traveling quite well for the moment.”

However the future direction of the metal is mixed, with many analysts expecting it to drop below US$1000 this year.

Bernard Dahdah, from French investment bank Natixis, the winner of last year’s London Bullion Market Association’s gold price forecast competition, is predicting the metal to average around US$970 per ounce this year, with a low of US$900.

Dahdah predicted that “the biggest influence on the price of gold this year will be the expected path of interest rate hikes”.

“Natixis expects further rate hikes by the Fed this year, which should increase the opportunity cost of holding the metal,” he said in the London Metals Bulletin Market Association’s latest precious metals forecast.

“Outflows from physically backed ETFs are expected to continue as higher-yielding investments and a stronger dollar becomes more attractive to investors.

“The upside risk comes from possible delays in rate hike cycle due to a weak US performance or more severe economic issues in China.”

BNP Paribas’ Martin Squires also predicted a weak gold price, with an even more bearish US$960 per ounce average forecast, and a US$900 low for the metal.

“BNP Paribas believes that gold’s downward trend will remain in place throughout 2016, pressured by the slower global growth, strengthening US dollar and the associated expectation of three further US rate hikes this year,” Squires said.

“We are forecasting gold to average US$960 per ounce in 2016,” he said.

However he remained positive for the short term, stating there are transient positives for the metal.

Overall, the average of more than 30 analysts forecast a median price of US$1103 per ounce, with expectations of it shifting between a low of US$978 and a high of US$1231 per ounce over the year.

This movement is in spite of the industry predicting peak gold for 2016.

New research by Thomson Reuters GFMS stated that production of gold globally will begin its decline, falling three per cent this year alone and capping close to a decade of rising output levels.

Peak gold was predicted to occur last year, as falling prices made as many as 10 per cent of all gold operations uneconomical.

Gold Fields head, Nick Holland explained, “We are all talking about how production was going to increase every year; I think those days are probably gone.”

“You are not going to see massive production increases in the industry,” he said, making the 2015 production figure a potential high water mark for the metal before it begins receding in output.

Much of the decline is due to major producers such as China, Australia, Russia, and the US failing to fill the enormous gap left by sharply falling production rates out of South Africa.

"2015 will be the peak in world gold production," Grant Thornton’s Brock Mackenzie told Australian Mining in an interview early last year.

“So every year after that there will be less gold produced, which will have a positive effect on the price."

Goldman Sachs research echoed Mackenzie’s prediction, with a dire warning of only 20 years of known mineable reserves of gold left, adding that discoveries of new sources peaked in 1995.

Barrick Gold president, Kevin Dushnisky also had a similar forecast combining a peak gold belief with a more positive future for the metal, stating that “falling grades and production levels, a lack of new discoveries, and extended project development timelines are bullish for the medium and long-term gold price outlook.”

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