Gold Fields’ latest survey finds total gold supply falling

Total world gold supply in 1991 dropped for the first time since 1983 to 2,815 tonnes from 2,913 tonnes in 1990, according to Gold Fields Mineral Services’ annual survey Gold 1992.

However, primary mine production in the western world rose by 2% during 1991 to a record 1,782 tonnes, the lowest increase in the past decade. A third of the gold mining industry is unprofitable, said Philip Klapwijk, senior metals analyst for GFMS while discussing the publication at a recent meeting of the Toronto Society of Financial Analysts.

Mine production is also expected to drop off sharply unless there is a substantial improvement in gold prices in the medium term, said Klapwijk. South Africa was identified as the most vulnerable with many of its mines already operating on razor-thin margins.

According to the survey, there is also an estimated 55,000 tonnes of bullion in above-ground stocks, primarily held by central banks.

Klapwijk said the amount of bullion held by Russia could be small, perhaps in the range of few hundred tonnes, but there are few reliable data to go on. Hedging transactions added 51 tonnes to the supply of metal in 1991 compared to 254 tonnes in 1990, the absence of price spikes being the primary reason for the reduced forward sales.

On the demand side, gold fabrication rose by 4% in 1991, not far short of the increase recorded the previous year. Fabrication represents more than 90% of total metal demand and comprises jewelry and imitation coins, official coins, electronics and other unidentified uses. Jewelry and imitation coinage accounted for 83% of the fabricated products.

Since 1989, the greater part of fabrication has taken place in the developing, rather than the developed, countries. Thus, there has been substantial growth in jewelry fabrication in a number of Far Eastern centres because of the demand for high-carat jewelry from China.

Despite the Tiananmen Square incident, China has posted impressive economic gains since 1989, most of it due to a budding private sector. The beneficiaries clearly entrust much of their new-found wealth to gold. South African production was marginally down to 601.1 tonnes and Australian output held up well despite the imposition of taxes on gold mining profits at the start of 1991. Australian output was 234.2 tonnes compared with 243.1 tonnes in 1990.

Minor increases were recorded by Canada and the U.S. but the only country to show a marked improvement was Papua New Guinea, where tonnage jumped from 33.6 in 1990 to 60.6 in 1991.

In the U.S., Canada and Australia, gold production was a combined 710.9 tonnes compared with 704.2 tonnes in 1990. Open pit production accounted for about 71% of the total (little changed in 1991 from 1990). Little new capacity is coming on line in the near future in any of the three countries and large increases are unlikely in the medium term.

Deep-mined gold has been remarkably constant during the last three years. That contrasts strongly with the increase in gold production from open pits. In 1982, gold production from this source was 50 tonnes and in 1991, 505 tonnes.