While it probably would be difficult to find anyone who would suggest gold entirely lost its lustre in 1988, more than a few would concede that its price performance excited only bearish investors. Starting off the year in the $475-$480 (us)-per-oz range, the gold price slowly declined as the months wore on. Brief rallies now and then propelled the metal to $460 or so, but with the hot summer weather came a settling-in period which saw the price hover around $430, and then drop to the $420 range as summer drew to a close. By mid-September, gold was averaging just under $450 for the year, up slightly from its 1987 average price. (At presstime, the price had slipped under $400.) So what’s wrong with a gold price (amazingly resilient after the October, 1987, stock market collapse) averaging $450? Nothing, of course, especially when a Canadian gold producer’s cash operating cost in 1987 averaged $209 per oz, according to the authoritative Consolidated Gold Fields. Worldwide, the average cash operating cost last year was estimated to be $227 per oz. In terms of profit to producers, while the global average cash operating cost rose by an estimated $39 between 1986 and 1987, the price of the metal jumped by $79 per oz (to $446.50) during the same period.
Among the more interesting discussions today focusing on gold is concern over future supply of the metal. Gold Fields pegs total world supply at 2,008 tonnes in 1987, down slightly from the previous year, but well above the 1,612 tonnes available in 1985. While in 1985 demand for the metal outpaced supply, in 1986 and 1987 a surplus resulted (128 tonnes and 144 tonnes, respectively). Uncertainty has been expressed over the ability of the investment community to absorb all the surplus gold production which is supposed to come on to the market during the next few years via new mining operations around the world.
Making a case earlier this year for the “bears” was The wefa Group of Pennsylvania, which, in a study titled Gold Crash: Risk or Reality? suggested that investors may be unable to keep up with rising output and that the price of the metal may fall to $350 by the early 1990s. In their argument, wefa researchers point out how gold has historically tended to act as an investment hedge against political and economic upheaval. “Thus, there is always the possibility of exceptional price appreciation,” writes the group. “The high price scenario suggests, however, that such appreciation will not be sustained since it requires the financing of ever larger quantities of gold at high prices — in the range of $20-$25 billion per annum at the margin by 1994-1995.”
On the other side of the coin are bullish commentators such as gold- price forecaster Martin Murenbeeld of Toronto who, in an article printed earlier this year in The Northern Miner laid out his case for higher gold prices. “Over the next few years a lot more tonnage will appear, but bear in mind 100 tonnes is worth about $1.5 billion at current gold prices, or about what the Bank of Japan spends in one hectic day supporting the U.S. dollar,” he wrote. “The market value of the New York Stock Exchange is around $2,500 billion. A miniscule shift in investor sentiment could easily absorb 200, 300 or 400 tonnes of gold.” Murenbeeld, who publishes a weekly report, continues to be bullish on gold. Inflation, he noted towards the end of the summer, was on an uptrend and, he believes, the price of gold will react accordingly.
Total mine production in the non- communist world in 1987 was 1,373.4 tonnes, up 6.4% from the previous year. Increases in production in the U.S., Canada and Australia combined to offset a fall in South African production. South Africa last year experienced its third consecutive annual drop in gold output; among the problems confronting mine owners there has been a decline in ore grades and a rise in cash operating costs (which averaged $261 per oz in 1987). Despite its troubles, South Africa accounted for about 44% of the non-communist world’s new gold mine production last year.
New mine production forecast for the coming years is not to be dismissed lightly. Exploration for the yellow metal continues in earnest in Canada, the U.S. (the Carlin gold belt in Nevada, with its millions of tonnes of low-grade reserves ready-made for the relatively inexpensive heap-leaching process, looks like a sure winner) and Australia. Much potential also exists in South America, particularly in Brazil, Chile and Venezuela. One of the fast-rising gold-producing nations is Papua New Guinea, where three mammoth gold projects — Misima, Porgera (considered one of the largest undeveloped gold deposits in the world; annual production could approach 800,000 oz) and Lihir — are nearing the production stage. The importance of gold mining to a nation’s economy cannot be underplayed; about 6% of Australia’s current export earnings, for example, comes from gold, compared with 1% in 1981.
Fabrication demand for the precious metal fell by 5% in 1987 from the previous year, Gold Fields reports, with jewelry accounting for more than 70% of the total fabrication offtake. Other major uses for gold include the electronics industry, dentistry and the minting of official coins.
While it probably would be difficult to find anyone who would suggest gold entirely lost its lustre in 1988, more than a few would concede that its price performance excited only bearish investors. Starting off the year in the $475-$480 (us)-per-oz range, the gold price slowly declined as the months wore on. Brief rallies now and then propelled the metal to $460 or so, but with the hot summer weather came a settling-in period which saw the price hover around $430, and then drop to the $420 range as summer drew to a close. By mid-September, gold was averaging just under $450 for the year, up slightly from its 1987 average price. (At presstime, the price had slipped under $400.) So what’s wrong with a gold price (amazingly resilient after the October, 1987, stock market collapse) averaging $450? Nothing, of course, especially when a Canadian gold producer’s cash operating cost in 1987 averaged $209 per oz, according to the authoritative Consolidated Gold Fields. Worldwide, the average cash operating cost last year was estimated to be $227 per oz. In terms of profit to producers, while the global average cash operating cost rose by an estimated $39 between 1986 and 1987, the price of the metal jumped by $79 per oz (to $446.50) during the same period.
Among the more interesting discussions today focusing on gold is concern over future supply of the metal. Gold Fields pegs total world supply at 2,008 tonnes in 1987, down slightly from the previous year, but well above the 1,612 tonnes available in 1985. While in 1985 demand for the metal outpaced supply, in 1986 and 1987 a surplus resulted (128 tonnes and 144 tonnes, respectively). Uncertainty has been expressed over the ability of the investment community to absorb all the surplus gold production which is supposed to come on to the market during the next few years via new mining operations around the world.
Making a case earlier this year for the “bears” was The wefa Group of Pennsylvania, which, in a study titled Gold Crash: Risk or Reality? suggested that investors may be unable to keep up with rising output and that the price of the metal may fall to $350 by the early 1990s. In their argument, wefa researchers point out how gold has historically tended to act as an investment hedge against political and economic upheaval. “Thus, there is always the possibility of exceptional price appreciation,” writes the group. “The high price scenario suggests, however, that such appreciation will not be sustained since it requires the financing of ever larger quantities of gold at high prices — in the range of $20-$25 billion per annum at the margin by 1994-1995.”
On the other side of the coin are bullish commentators such as gold- price forecaster Martin Murenbeeld of Toronto who, in an article printed earlier this year in The Northern Miner laid out his case for higher gold prices. “Over the next few years a lot more tonnage will appear, but bear in mind 100 tonnes is worth about $1.5 billion at current gold prices, or about what the Bank of Japan spends in one hectic day supporting the U.S. dollar,” he wrote. “The market value of the New York Stock Exchange is around $2,500 billion. A miniscule shift in investor sentiment could easily absorb 200, 300 or 400 tonnes of gold.” Murenbeeld, who publishes a weekly report, continues to be bullish on gold. Inflation, he noted towards the end of the summer, was on an uptrend and, he believes, the price of gold will react accordingly.
Total mine production in the non- communist world in 1987 was 1,373.4 tonnes, up 6.4% from the previous year. Increases in production in the U.S., Canada and Australia combined to offset a fall in South African production. South Africa last year experienced its third consecutive annual drop in gold output; among the problems confronting mine owners there has been a decline in ore grades and a rise in cash operating costs (which averaged $261 per oz in 1987). Despite its troubles, South Africa accounted for about 44% of the non-communist world’s new gold mine production last year.
New mine production forecast for the coming years is not to be dismissed lightly. Exploration for the yellow metal continues in earnest in Canada, the U.S. (the Carlin gold belt in Nevada, with its millions of tonnes of low-grade reserves ready-made for the relatively inexpensive heap-leaching process, looks like a sure winner) and Australia. Much potential also exists in South America, particularly in Brazil, Chile and Venezuela. One of the fast-rising gold-producing nations is Papua New Guinea, where three mammoth gold projects — Misima, Porgera (considered one of the largest undeveloped gold deposits in the world; annual production could approach 800,000 oz) and Lihir — are nearing the production stage. The importance of gold mining to a nation’s economy cannot be underplayed; about 6% of Australia’s current export earnings, for example, comes from gold, compared with 1% in 1981.
Fabrication demand for the precious metal fell by 5% in 1987 from the previous year, Gold Fields reports, with jewelry accounting for more than 70% of the total fabrication offtake. Other major uses for gold include the electronics industry, dentistry and the minting of official coins.
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