Gold Price Gridlock. Where does it go next?

By Ross Norman*

What happens when an unstoppable force meets an immovable object ? The paradox is not meant for philosophic debate, but an intro to possibly explain the current gold price (in)action… and by extension, where it might be headed.

Gold saw a stellar rise in H1 2016 and has since tracked sideways, with price volatility falling to a two year low. It would be easy to blame the lacklustre price action upon economic policy uncertainty and what is increasingly looking like two increasingly divergent narratives about the course the economy is taking. We think there is a stalemate in play.

To get a view on the price outlook for the balance of 2016 one needs to consider who the protagonists involved in this stand-off are and how they are likely to behave.

The first point to make is that 2016 has been an epic year in terms of the scale and speed of the reverse flow of bullion. Chinese and Indian demand coupled with Central Bank buying dominated the demand-side over the previous 5 years but has slowed to a trickle, while the erstwhile sellers – the West – have turned buyers. Metal that had been flowing from Western central bank selling, institutional sales of ETFs and even cash-for-gold at a retail level through the Swiss refineries is now flooding back into the West.

Switzerland is the nexus for gold flows because of the large number of refineries operating there – and they convert the metal from a purity the Asians want (typically 99.99% purity and kilobar size) from the Western standard (typically 99.5% purity and 12.5 kg bars) – happily they also have reliable import-export data to aid market intelligence.

It would be tempting to imagine that all buying is equal – not so – some is “stickier” than others and herein lies the key issue.

The new Western buying has come from two key sources – about 500 tonnes of buying in the form of gold futures (OK leveraged paper and not physical) and the purchasing of 580 tonnes of gold ETFs in H1 much of which will have flowed into the nominated vault (usually HSBC London). This buying – as we learnt in 2011 when gold peaked at $1922 – is arguably of a much flakier nature than Asian buying. Futures traders typically hold for far shorter periods of time and are less concerned with market fundamentals. Many are long, sitting on a handsome profit and impatient. They are the ‘weak hands’ and in that environment it would be easy – and even healthy to see a good bout of profit-taking.

The buyers are the Asians, European investors and Central Banks ; they however are showing a greater level of patience – if the gold price dips they buy, but they are not going to chase it higher. This is a familiar approach that Indian traders would typically adopt but it seems to have extended into China and even the official sector behaviour. As such, we have seen modest price corrections which are often shallow and short-lived, suggesting the market is very well supported. We ourselves have a good number of physical clients here at Sharps Pixley looking to get in – but only at a lower price – we think this is not untypical.

Removing uncertainty over the US elections from this story, we would expect the impasse to continue for a while to come. The COMEX traders have shed about 15% of their positions from the peak and even the ETF buyers have indulged in some profit-taking. There is however quite a sizeable overhang of metal still to be absorbed by the ‘real’ market before we can expect the new direction to emerge in our view. All good things come to those that wait.

*Ross Norman, CEO Sharps Pixley

Ross started his business career with business guru Sir Clive Sinclair of Sinclair Research in Cambridge, before joining Johnson Matthey as Gold Refining Manager (then the worlds largest gold refiners), then as a gold trader at NM Rothschild & Sons (the Chairman of the London Gold Fixing) and later Credit Suisse, where he was a Senior Dealer in physical bullion trading.

Ross has an enviable record within the London Bullion Market in forecasting the gold price over the last decade and is frequently sought by the media for commentary on the bullion markets. Ross has made frequent appearances on TV (BBC, CNBC, CBC) in newspapers (FT. Wall Street Journal) as well as in the newswires (Reuters, Bloomberg and Dow Jones).

Gold Flow reversals – will they continue after U.S. holiday season over?

The U.S. holiday season effectively gets into full swing on the Independence Day weekend around July 4th, and comes to an end after Labor Day, which was on July 5th.  These holidays can represent major turning points in investment sentiment.  Gold investors will have Labor Day 2011 writ on their hearts as that was effectively the day the gold bull market ended, and a four and a half year bear market in the precious metal began.  This year saw the big SPDR Gold Shares (GLD) gold ETF reach its interim peak at 982.72 tonnes immediately following Independence Day.  Currently its holdings stand at 937.89 tonnes – a fall of 44.83 tonnes in only two months.  Gold investors will thus be nervous at what the post-holiday period will bring this year and sentiment indicators, like the GLD holdings, will thus be followed with particular interest for the next few days to see where the market is possibly headed.

Initial indications on European markets look positive with gold putting on a few dollars in morning trading today (July 6th), but it is the opening of the U.S. markets later on (this is being written at 6.24 am EST) which will be watched with particular interest as it is still very much the U.S. gold futures markets which call the tune on the gold price.

But the GLD figures, which tend to be a strong indicator of North American gold investment sentiment, particularly from the institutional viewpoint, will not be the only indicators being viewed with huge interest by gold investors.  As we have pointed out here beforehand there have been some hugely relevant reversals in gold supply and demand patterns this year.  Asian demand has been seen as weak with the two largest markets, China and India, taking in less gold that previous years, while Swiss gold import and export statistics have reversed with respect to some key nations which usually export gold to Switzerland for re-refining, becoming significant gold importers from the Alpine nation – notably the UK and the US – while on the other hand some key nations which had been significant importers of Swiss gold to meet their own trading needs have in turn become the largest exporters of gold back to Switzerland – notably the United Arab Emirates (UAE) and Hong Kong.

We have speculated here that this remarkable change in gold flows has been for two main reasons.  The first is that physical gold availability in the West has been becoming tight – particularly due to the big first half of the year needs of the major gold ETFs to maintain their gold balances in the light of big money flows into them by gold-focused investors.  The second reason, we have suggested, is that the big gold fabricators and traders in nations/states like the UAE and Hong Kong have been suffering from a severe downturn in gold demand from their traditional purchasers, mostly in Asia, and have been liquidating excessive inventories built up in the expectation of continuing high Asian demand levels.  With the substantial rise in the gold price so far this year this has been a profitable trade.

But is all this about to change and will Labor Day be the trigger?  The return of fund managers and traders to their desks may prompt a serious rethink in terms of gold investment policy and this could take the gold price in either direction depending on consensus.  This makes the past two months’ gold price mostly range-bound movements perhaps the calm before the storm.

So what is changing which could affect the price scenario?  By all accounts Indian and Chinese demand is beginning to pick up again, while on the other hand gold ETF inflows have been replaced by outflows, but this could change rapidly with any improvement in sentiment towards gold investment.  Net central bank gold buying appears to have fallen off, although as we pointed out in our recent article: Central bank gold buying – what the media reports don’t really tell you , perhaps not too much should be read into this yet given there are only three significant central bank gold buyers – Russia, China and, to a lesser extent, Kazakhstan and month by month announced reserve increases by the first two of these can be somewhat variable.

On the gold production front, we may, or may not, have reached peak gold, although evidence suggests we are now there or thereabouts.  The Australians may be bucking the trend and increasing production to maximise returns (See: Australian Gold Output Hits 15-Year High, but in other nations undoubtedly new mined gold output is beginning to slip.

So gold fundamentals are somewhat mixed in outlook, but close to balance and the markets could move it in either direction.  We remain gold positive as even when price weakness has appeared with some big technical sales on the COMEX futures market driving the price down, such raids have tended to prove shortlived in duration and effect suggesting there are plenty of buyers out there in the $1,300 – $1,340 range where gold is currently trading.  But it could be a whole new world for gold from today when the traders and fund managers are fully back on track.  With the U.S. futures market still effectively setting the gold price, although Shanghai seems to be having an increasing mitigating influence, this is all vitally impotrtant for the gold price direction from here on.  We shall see.

The above is an edited and updated version of one which I had previously posted on 

World Gold Council: Gold demand at record levels in Q1 2016

World gold demand, as assessed by consultancy Metals Focus on behalf of the World Gold Council (WGC), rose 21% as investors surged into gold ETFs.  Key figures on global demand and supply for the quarter as released by the WGC are set out below:

According to the WGC figures, global gold demand reached 1,290 tonnes in the first quarter of  2016, a 21% increase compared to the same period last year, making it the second largest quarter on record. This increase was driven by huge inflows into exchange traded funds (ETFs), fuelled by investor concerns regarding economic fragility and an uncertain financial landscape. It was all the more remarkable in that Asian demand, primarily from China and India, has been weak so far this year. thus, global demand for jewellery was down 19%, as higher prices and industrial action in India and a softening of the economy in China meant many consumers delayed making purchases.

Inflows into ETFs totalled a massive  364 tonnes in the quarter – the highest quarterly level since Q1 2009 – and compares with 26 tonnes in Q1 a year ago. The WGC reckons that gold found favour as a risk diversifier due to the negative interest rate environment in Europe and Japan, combined with uncertainty over the Chinese economy, anticipation of slower interest rate rises in the US and global stock market turmoil.

Total bar and coin demand, even in Asia,  was stronger by some 254 tonnes, marginally higher than the same period last year. Weakness in price sensitive markets was offset by strength elsewhere with 5% growth in China (62 tonnes) and strong demand in the US and the UK, which grew by 55% and 61% respectively. In total, investment demand was 618 tonnes, up 122% from 278 tonnes in the same period last year, igniting a rally in the gold price which appreciated by 17% in dollar terms during the quarter.

This strong investment performance was not reflected in the bigger jewellery sector though, with demand levels sharply down in India and China. While both countries had a slow start to the year as a result of consumer uncertainty and rising gold prices, the situation was greatly exacerbated by the industrial action in India.

Central banks remained strong buyers, purchasing 109 tonnes in the quarter. This represents the 21st consecutive quarter that central banks have been net purchasers of gold as they continue to diversify away from the US dollar.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said: “Two major themes emerged in the first quarter of 2016. Spurred on by the uncertainty raised by negative interest rates, the investment sector was the dominant driver of gold demand, helping to push prices up 17% over the course of the quarter, as ETF inflows swelled. Conversely, jewellery demand endured a difficult quarter due to a continued lack of consumer confidence in the face of a weakening Chinese economy and a 42 day strike by jewellers in India. But we believe Indian demand has simply been postponed, with buying likely to increase for Akshaya Tritiya [Akshaya Tritya demand, which was a few days ago, turned out to be disappointing] and the wedding season.

“Looking ahead we anticipate that ongoing market uncertainty and unconventional monetary policies will continue to support both investment and central bank demand. This, combined with an expected recovery in India, should see gold demand remain healthy over the course of 2016.”

Total supply for Q1 2016 saw an increase of 5% to 1,135 tonnes compared with 1,081 tonnes in the first quarter of 2015. Increased hedging of 40 tonnes, coupled with slightly higher mine production of 734 tonnes (729 tonnes in Q1 2015), outweighed a marginal decline in recycling.

The key findings from the report for Q1 2016 are as follows:

  • Overall demand for Q1 2016 increased by 21% to 1,290 tonnes, up from 1,070 tonnes in Q1 2015.
  • Total consumer demand was 736 tonnes down 13% compared to 849 tonnes in Q1 2015.
  • Global investment demand was 618 tonnes, up 122% from 278 tonnes in the same period last year.
  • Global jewellery demand fell 19% to 482 tonnes versus 597 tonnes in the first quarter of 2015.  
  • Central bank demand dipped slightly to 109 tonnes in Q1 2016, compared to 112 tonnes in the same period last year.
  • Demand in the technology sector fell 3% to 81 tonnes in Q1 2016.
  • Total supply was up 5% to 1,135 tonnes in Q1 2016, from 1,081 tonnes in the first quarter of 2015. Mine supply was up 8% to 774 tonnes.

The Q1 2016 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed  here  and on the WGCs iOS and Android apps. Gold Demand Trends data can also be explored using the WGC interactive charting tool 

China’s SGE gold withdrawals in April 171 tonnes

The latest announcement from China’s Shanghai Gold Exchange (SGE) shows that  gold withdrawals for April totalled 171.4 tonnes so remain subdued compared with the past couple of years.  For the first four months of the year 687.3 tonnes were withdrawn, very sharply below the 820.6 tonnes at this stage a year earlier (admittedly a record year) – representing a fall of over 19% year on year. However, even at the current lower monthly rate taken out over the full year this would suggest SGE withdrawals remaining at over 2,000 tonnes for the full year  Thus even at a lower level Chinese gold demand as represented by SGE withdrawals – although there are some arguments from top analysts that these overstate the nation’s true absorption of physical gold – do account for a very significant proportion of the world’s newly mined supply of gold – currently around 3,200 tonnes a year.

Indian gold imports have also been low in the first four months – initially due to demand being held back ahead of the late February budget in the hope of a reduction in import duties – and subsequently due to strike action by the jewellery sector disappointed that the duty cuts were not forthcoming.  Thus the recent performance of gold, given what has been a strong downturn in Asian demand, has been all the more remarkable.

To a significant extent growth in Western demand, represented by purchases into the major gold ETFs and strong buying of gold coins and investment bars has been making up a lot of the shortfall from Asia. The biggest of the gold ETFs, SPDR Gold Shares (GLD) for example, has added around 192 tonnes of gold so far this year alone. It is still hugely below its peak, but is currently back at a level last seen in December 2013 with holdings at the end of last week at 834.19 tonnes.  It has put on 30 tonnes since the end of April.  And according to Bloomberg i inflows into all the gold ETFs it follows totalled around 330 tonnes in Q1 alone.  It thus looks as though ETF inflows are taking up any slack represebted by what is very probably a temporary downturn in Asian demand and gold flows.

The other contributor to the strong price performance in terms of logistics rather than just sentiment is that physical gold actually appears to be in relatively short supply with available inventories falling in the USA and the UK, where most is held.  The head of one of Switzerland’s largest gold refineries recently told Jim Rickards of problems in securing sufficient supplies to meet demand.  With new mined gold supply almost certainly plateauing, and possibly even beginning to turn down, demand shortages could be exacerbated further.   A recent analysis by Paul Mylchreest, who many may remember as the author of the sadly missed Thunder Road Report also even suggests that the London Bullion Market may even be in deficit.


Global gold demand down 12% Q2 2015

The latest run of statistics from the World Gold Council has been released in the form of its Q2 Gold Demand Trends analysis with data nowadays being provided by London-based precious metals consultancy – Metals Focus.  While it finds that global demand is down 12% year on year it notes that there is a good likelihood that demand will pick up well in the second half – indeed the latest gold price moves and figures for Indian imports and SGE withdrawals suggest that this may already be happening.  On the Fundamentals front it also noted that supply was down 5% with an increase in mine supply being more than countered by a fall in gold scrap supplies. Central bank purchases were down year on year but still remained strong with the Q2 figure up on that for Q1.

The World Gold Council’s own release on the latest figures, with links to the full report, follows:

The World Gold Council’s Gold Demand Trends report for Q2 2015 shows total demand was 915 tonnes (t), a fall of 12% compared to the same period last year, due mainly to a decline in demand from consumers in India and China. However, demand in Europe and the US grew, driven by a mixture of increasingly confident jewellery buyers and strong demand for bars and coins. Looking ahead, there are encouraging signs moving into what are traditionally the busiest quarters for gold buying in India and China.

Overall jewellery demand was down 14% to 513t, from 595t in 2014 due to falls in consumer spending in Asia. In China, slowing economic growth and a rallying stock market led to a 5% fall in demand to 174t. In India, the heavy unseasonal rains in Q1 and drought in Q2 impacted rural incomes and affected gold demand. In addition, a dearth of auspicious days for marriages in Q3 meant that wedding-related demand was unusually slow, leading to a fall in jewellery demand of 23% to 118t. Overall, if we look at the picture for the first half of this year in India, jewellery was down 3% to 268.8t from 276.1t (H1 2014). The US remained steady, with jewellery demand up for the sixth consecutive quarter by 2% (26t). In Europe demand was also up, with Germany up 7% and the UK and Spain both growing by 6%.

Global investment demand was down 11% to 179t from 200t in Q2 2014. India was the main driver of the fall, down 30% to 37t, due to uncertain price expectations and a buoyant stock market. This was countered by a rise in Chinese bar and coin demand, up 6% to 42t. In Europe, fears of a potential Greek exit from the eurozone saw retail investment in gold reach 47t, a rise of 19% compared to last year. The US also saw strong demand, with retail investment increasing by 7%. Of particular note was the huge burst of activity in June, when bullion coin sales by the US Mint hit a 17-month high.

Elsewhere, central banks continued to be strong buyers of gold. Net official sector purchases totalled 137t, with Russia and Kazakhstan the biggest purchasers. Although a year-on-year fall of 13%, buying increased by 11% when compared with the first quarter of this year. It is the 18th consecutive quarter where central banks were net purchasers of gold.

Total supply was down 5% to 1,033t, as an increase in mine production of 3% to 787t in Q2 2015 was offset by declining recycling levels – down 8% to 251t. The indication for H2 2015 is that mine production will slow as the gold mining industry continues to manage their costs and optimise operations in the face of challenging markets.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said:

“It’s been a challenging market for gold this quarter, particularly in Asia, on the back of falls in India and China. The reverse is true for western jewellery markets, as increased economic confidence led to continued growth in consumer demand. It is  fair to say that investment demand for the quarter remained muted given the continuing recovery in the US economy and booming stock markets in India and China during the quarter. 

Jewellery market prospects look healthier for the remainder of the year with the upcoming wedding and festival season in India. In addition, falls in the gold price have historically triggered buying in price sensitive markets and we are already seeing early indications of this across Asia and the Middle East. Conversely, sharp falls in Chinese stock markets have shaken the largely consumer investment base and we are seeing early indications of interest in buying gold again – all illustrating the unique self balancing nature of gold demand and the diverse drivers which underpin it.” 

Gold demand and supply statistics for Q2 2015

  • Overall demand was down 12% in Q2 2015 to 915t compared to 1,038t in Q2 2014.
  • Total consumer demand – made up of jewellery demand and coin and bar demand – totalled 715t, down 14% compared to Q2 2014.
  • Global jewellery demand was 513t, down 14% compared to the same period last year, due to falls in China, down 5% to 174t, as well as India, down 23% to 118t.  The US and Europe saw continued growth with the US up 2% to 26t, and Europe up 1% to 15t.
  • Total investment demand was down 11% to 179t, compared to 200t in the same quarter the previous year. Demand for bars and coins saw a 15% drop to 201t from 238t  the previous year, as the sector was affected by an expected increase in US interest rates and a continued shift towards other asset classes, notably equities. ETFs saw outflows totalling 23t, lower than the outflows of 38t seen in the same quarter last year.
  • Central banks continued to be strong buyers of gold, accounting for 137t in Q2 2015, slightly down on the equivalent quarter last year, but up 11% compared to the previous quarter. It was the 18th consecutive quarter where central banks were net purchasers.
  • Year-on-year quarterly mine production increased 3% to 787t in Q2 2015, against 763t in Q2 2014. Recycling levels were down 8% year-on-year to 251t compared to 273t in Q2 2014, resulting in total supply falling 5% to 1,033t.

The Q2 2015 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed at on our iOS and Android apps..

You can follow the World Gold Council on Twitter at @goldcouncil and Like on Facebook

GFMS survey puts China top consumer, miners in dire straits and gold price likely to slip this year before recovering later on.

The latest Gold Survey from Thomson Reuters GFMS holds out few surprises coming to very much the same conclusions as others of this ilk from Metals Focus and CPM Group.  It does however put China back as the global No. 1 gold consumer last year – contrary to the suggestion noted in the World Gold Council’s Gold Demand trends in february which suggested India may have overtaken China again – presumably at the time also on figures supplied by GFMS.

Top 20 Gold Consuming nations (tonnes) excluding bank activity

Country 2014 Demand Percent of global total
1.       China 895 24.2
2.       India 852 23.1
3.       USA 242 6.5
4.       Germany 129 3.5
5.       Japan 119 3.2
6.       Turkey 119 3.2
7.       Thailand 93 2.5
8.       Russia 93 2.5
9.       Iran 79 2.1
10.   UAE 71 1.9
11.   Vietnam 69 1.9
12.   Saudi Arabia 67 1.8
13.   Indonesia 58 1.6
14.   Egypt 58 1.6
15.   Canada 58 1.6
16.   South Korea 55 1.5
17.   Hong Kong 44 1.2
18.   U.K. 41 1.1
19.   Brazil 35 1.0
20.   Pakistan 33 0.9

Source:  GFMS, Thomson Reuters

Overall the survey suggests that new mined gold supply may have peaked last year, will remain flat this year and will start coming down fairly sharply next with a graphic putting virtually half the world’s mines in the red at current gold prices – see below:

GFMS graphic showing gold mines and their costs on an operating, AISC and depreciation/amortisation costs against gold prices

gold mine costs graph

The Thomson reuters Press Release showing the main take-away points from the 116 page Gold 2105 Survey is set out below.  LawrieOnGold readers may request a complimentary cop[y of the full report by clicking on the link: 

  • Demand and dollar prices continue to build a base

Like most markets, gold takes time to recover from periods of turbulence and in early 2015 it is continuing the stabilisation of 2014 following the hurricane that swept through it in the previous year.  Demand contracted sharply in 2014 as some key regions, notably China, suffered from over-purchasing in 2013, while lack of confidence in any near-term price recovery deterred investment purchases elsewhere. There are signs that confidence is starting to return, however, as the physical market adjusts and takes comfort from the price stabilisation since November 2014.


  • Western investors are likely to return in 2015 – but not yet

In the western markets in particular, dollar strength and the focus on FOMC policy has remained to the fore.  While US monetary policy will remain a central focus over the course of 2015, investors are already discounting a return to a rising interest rate cycle (albeit gradual) and it is arguable that loose-handed holders are out of the market. This does not automatically signal higher prices however, as these require fresh investment activity; indeed there is still the possibility of short-side sales in response to any unsettling news or economic development.  Once the new rate cycle is in place (or signalled), asset reallocation is likely to commence and we expect gold to benefit accordingly.


  • Further short-term weakness to ensue in dollar terms, while local prices have already bottomed

The dollar is likely to retain currency supremacy, given monetary policy elsewhere in the world, and non dollar-denominated gold prices are believed to have bottomed.  In dollar terms, however, the GFMS team at Thomson Reuters is looking for further slippage towards $1,100/ounce during 2015, with an annual average of $1,170/ounce in 2015, with prices rising towards year-end; this should lead to an average of $1,250/ounce in 2016 as buying picks up in Asian markets and institutional investment in these markets offsets the recent decline in Over-the-Counter demand in the West.


  • Official sector purchases the second highest total since the end of the gold standard.

Official sector gold transactions in 2014 amounted to an estimated net purchase of 466 tonnes, up 14% from 2013 and the second highest level since the end of the gold standard. Heightened political tensions in 2014 saw Russian central bank reported gold purchases reach record levels at 173 tonnes, while several CIS countries increased their gold holdings. Sales remained muted.  The sector is expected to remain a source of demand for gold over the medium term.


  • The structural shift in the market points to increase price stability

The renewed eastward shift in physical gold demand (following the westward lurch following the start of the financial crisis) stalled last year, but is expected to resume as the markets continue to stabilise. This will, in GFMS’ view, give the gold market fresh stability in the near to medium term. The appetite for gold in the East was well-illustrated in 2013 and, as stocks are worked off and confidence returns, we expect the Asian markets to reassert their power in terms of price support.


  • Jewellery demand – excluding China – has remained robust

World jewellery fabrication– excluding China – actually increased by 6% in 2014.  The result of the massive surge in jewellery demand in China in 2013 was a fall of 35% in Chinese jewellery consumption and 31% in local jewellery fabrication last year. Even so, Chinese jewellery fabrication in 2014 was 7% higher than in 2012 and the second highest on record. Heavy leasing activity in the local market has led to suggestions that retail demand was much higher than was actually the case.  India, despite import restrictions, reached another record in both fabrication and consumption terms, reflecting the determined affinity of the Indian people for gold.  China and India between them accounted for 54% of the world’s jewellery, bar and medal demand in 2014.


  • Investment was cramped by the Asian markets in 2014, but is expect to recover

Overall investment demand was the fifth highest on record, despite year-on-year contractions.  The retail coin and bar market was the one that really suffered in 2014, slumping by 40% year-on year, driven particularly by the Asian markets, reflecting the action of 2013 and unease over the price outlook.  Elsewhere in the investment sector, ETF holdings continued their erosion, albeit at a much slower rate than in the previous year.


  • The mining sector continues to struggle

The gold mining sector remains in a precarious condition.  While production expanded in 2014, to 3,133 tonnes, this reflected a ramp up of previously commissioned projects.  Output is expected to be flat in 2015 as this impact wanes, before starting a palpable decline.  All-in-Costs dropped by 25% to $1,314/ounce in 2014 (the average spot price over the year was $1,266.40), although this fall was distorted by the large number of impairments incurred in 2013.  If these are stripped out then the fall was much more modest at 3%.  Average total cash costs decreased by 3% to $749/ounce, reflecting advantageous foreign exchange rate movements and higher processed grades, while labour costs and lower by-product credits were adverse factors.


  • Corporate activity also reflects the parlous state of the sector

Corporate activity in the gold mining industry continued to decline in 2014, with aggregated deals amounting to just $7.3 Bn, approximately 9% lower than in 2013 (data from ThomsonOne Investment Banking). Miners’ priorities focused largely on rationalising existing portfolio and strengthening balance sheets by reducing debt levels while deteriorating sentiment drove the determination to increase efficiency.  Hedging, at 103 tonnes, was the highest since 1999, but the GFMS team does not believe that this is a turning point to widespread hedging activity, as it remains confined to a small subset of producers.  This year may see net hedging, but it is likely to be of a comparable scale to that of 2014.


Copper and gold – parallels in massive supply deficit scenarios

Looking at parallels between looming supply shortages for copper and gold, and the likely different patterns the two metals will follow given copper is very much an industrial metal whereas gold largely revolves around financial and investment factors.  But China is perhaps the single key element in both scenarios

Lawrie Williams

I have just written an article for Mineweb covering a prediction that global copper supply is heading for a very large deficit – perhaps as much as 1.5 million tonnes by 2018.  See: Copper heading for 1.5 million tonne deficit by 2018  .  I have also penned an article on what I see as a looming gold supply deficit (indeed it may actually be with us already) on these pages (See: 2015 global gold supply deficit could be substantial).

There are some interesting parallels between the two articles with one particular factor standing out – notably Chinese demand.  In terms of copper the current weak copper price is largely because there has been something of a hiatus in Chinese copper purchases in line with something of a downturn in the Chinese economic growth.  Note this is not a recession in the economy, but a downturn in the levels of growth seen in the recent past.  The Chinese economy still seems to be growing, but at a slower rate.  The analyst bandwagon has seized on the slowdown as showing that the supercycle, primarily generated by Chinese demand for industrial metals of all kinds, has thus ended.  The copper article stems from analysis by senior Bernstein analyst, Paul Gait, that in fact the Chinese generated supercycle is only around one-third into its course and the Asian dragon still has a huge amount of  ground to make up on  all other industrialised nations in terms of per capita metal consumption.

In turn the recent slowdown in Chinese economic growth has seen metal prices fall to production costs only now being just about covered by income from sales, whereas traditionally the copper mining sector operates on the basis of a 50% premium of sales to costs.  As a consequence the big copper miners are cutting back heavily on costs, leading to a drastic fall in exploration expenditures, curtailment and cancellation of big new capital projects and expansions and some closures of now uneconomic existing mining operations to satisfy shareholder and institutional demands for profit maintenance, or at least recovery.

But, at the same time many of the major producing mines are seeing mill head grades running substantially above reserve grades which can only lead to declining output, without major plant expansions to counterbalance the trend.  And finance for such major expansions is becoming more and more difficult to come by.  With exploration curtailed, and nowadays huge lead times in taking a major new mine from discovery to production (figures of 30 years are being quoted) the world is facing a major copper shortage in the years ahead.

Gold is running into a very similar situation on the supply side.  We may well have seen peak gold last year as low gold prices are already leading to new project cancellations and curtailments, closures of uneconomic operations and a big downturn in exploration expenditures.  Coupled with older mines running out of ore and declining grades at other older operations it is beginning to look like this is the year global new mined gold production may be about to start to fall.

In other respects, though,  gold and copper are on somewhat divergent paths.  A big copper supply deficit is at least in part dependent on an uplift in global industrial demand and, in particular a recovery in Chinese imports.  On gold though, we think the deficit is already in place and the reason it doesn’t show in analysts’ statistics is they totally ignore upwards of 1,000 tonnes of gold going into China, but not classified as ‘consumed’.  The latest World Gold Council (WGC) Gold Demand Trends report, with figures from GFMS has a very tight figure for Chinese gold consumption (814 tonnes) which seems to bear little relation either to known imports of gold into mainland China, China’s own production and even less so to the huge Shanghai Gold Exchange withdrawals figures for 2014 which came in at over 2,100 tonnes.  The WGC writes this difference off as mostly gold going into the Chinese banking system to be used in financial transactions and as collateral and thus not classified as ‘consumed’.   I speculated that maybe this was Central Bank gold being hidden from the IMF by being held in the commercial banks (See: Is China hiding its central bank gold in its commercial banks?) China gold watcher Koos Jansen disagrees both with the WGC and with my speculative thoughts and he probably studies this market more than most – See(Koos Jansen vs WGC/GFMS/CPM Update).

But wherever this gold is actually going, it is physical gold and it is being removed from the market and if you add this into the WGC statistics one is starting to see a very large supply deficit if their other figures are correct – and a deficit which has probably been in place now for the past three years or more.

Unlike copper, however, gold is much more subject to potential financial manipulation through the futures markets and thus price trends are probably more difficult to predict, although logic does suggest that at some stage a real shortage of physical gold in the West will be seen and start to have a major positive impact on prices, but it is as yet uncertain when this break point will be reached timewise.  With copper the inflection point will be reached when industrial consumers start running out of metal and that is a far more discernible factor as it can’t be hidden by enormous paper transactions (in relation to size of market) as can gold.

So China is very much the key to both markets, although India again is appearing to be a major player in future gold supply and demand.  Latest figures out of the Shanghai Gold Exchange show another 59 tonnes withdrawn in week 6 making a total of 374 tonnes withdrawn this year already.  This is substantially more than over the same period in 2013, or in 2014.  Thus where is all this gold going – or perhaps more importantly where is it all coming from?  It exceeds global new mined production on its own, and China alone only accounts for around half global gold demand.  The figures just don’t seem to add up without their leading to some kind of price breaking point.  But when?

Chinese gold demand discrepancy explained?

The huge difference between what  the WGC/GFMS describes as Chinese gold demand and SGE figures, is all a question of statistics and how they are interpreted and what is actually classified as ‘consumption’ or ‘demand’

Lawrie Williams

For some time now there has appeared to be an enormous discrepancy between apparent Chinese estimated demand figures as calculated by bodies like the World Gold Council (WGC) and GFMS and the reality of Chinese gold withdrawals from the Shanghai Gold Exchange (SGE).  And it all seems to be down to the way the statistics are calculated and what is included in the words ‘consumption’ or ‘demand’ by the analysts.  To some extent this has been clarified in part by the latest Gold Demand Trends report from the WGC which comments as follows: “The flow of gold into China has far exceeded the amount needed to meet domestic jewellery and investment demand in recent years. The role of the commercial banks in using this gold for financing purposes has been well documented, including in our report, Understanding China’s gold market, and this activity expanded in 2014. To some extent, this helps explain why Shanghai Gold Exchange delivery figures are significantly higher than consumer demand.”

The apparent difference between what we will describe as Chinese ‘consumption’ and Chinese ‘total demand’ is thus huge.  WGC/GFMS calculates ‘consumption’ as being made up only of jewellery, technology and investment demand and in mainland China’s case this came to around 814 tonnes in 2014, around 38% down from that of 2013.  But with SGE withdrawals coming to a little over 2,100 tonnes in 2014 – which some equate to total Chinese demand – this leaves a tremendous gap of almost 1,300 tonnes in the two different calculations.  The WGC will tell you that there is an element of double counting in the SGE withdrawal figures, but admits this is probably small, only relating to some recycled gold,  and now suggests the balance is held by Chinese banks (which it classifies as stocks and therefore doesn’t include the figures in its demand classification).

So perhaps we should look at ‘gold flows’ rather than various definitions of ‘consumption’ or ‘demand’ and in this respect ‘gold flows’ from West to East – and into China in particular were very large indeed in 2014 – indeed may have been greater than in 2013 given the big recovery in Indian ‘demand’ which doesn’t appear to be distorted by bank inflows. If we use ‘gold flows’ as a measure the amount of gold ‘flowing’ into China hugely exceeds that ‘flowing’ into India, although on WGC ‘demand’ figures India seems to be interpreted by the media as having regained the world No. 1 spot.  In truth it probably hasn’t really been the No. 1 for three or four years already given this additional, but unconsidered, demand from the banks. Indeed even this year if one adds Hong Kong ‘demand’ into that of the mainland, Chinese demand as calculated by the WGC was still a little ahead of India’s.

The WGC is very excited by what it sees as a big turnaround in Indian jewellery demand, particularly in Q3 and Q4 last year.  It puts this very much down to a change in attitude in the Indian jewellery trade following the election of the Modi government which is, on the face of things, much more pro-gold than its predecessor.  There is a definite suggestion that gold import controls will be further reduced and there will have been some ability within the jewellery sector to respond ahead of likely tax changes.  There is also anecdotal evidence that the incidence of gold smuggling to avoid taxes and the prior 80:20 import restriction has fallen back too.

Speaking to the WGC’s Head of Communications, John Mulligan, at the big Cape Town Mining Indaba, and he was quick to point out that in addition to the big gold flows eastwards, an often overlooked statistic is that in Europe, German investment demand has been particularly strong.  He reckoned that, in fact, German gold investors have been buying more than their U.S. counterparts since 2008!

Other points from the latest Gold demand Trends report include comment that Central Bank purchases held up better than anticipated, largely due to buying from Russia and some other CIS states which between them accounted for around half of such purchases last year.

Sales out of gold ETFs were at a fraction of those of 2013 and while new mined gold production grew by a small 2%, the WGC thinks that this may well have now plateaued so perhaps peak gold is at last upon us.  There are few major new gold projects and expansions still in the pipeline, exploration has diminished drastically, while a number of older operations are facing closure through ore depletion, or because they can no longer mine profitably at current gold price levels and in many cases grades are falling.

To access the latest full 28-page Gold Demand Trends report click on

Gold supply continues in surplus this year – GFMS

Gold supply continues in surplus this year – GFMS

As always the latest GFMS update on its Gold 2014 report makes for interesting, if somewhat controversial, reading.  Excerpt from commentary posted today on – click on to read full article.  It’s also notable that some commentators take the latest GFMS update to show that India has re-overtaken China as the world’s largest gold consumer.  We disagree – the figures just don’t add up!

Lawrence Williams

The latest update of the annual study by GFMS of world gold supply and demand makes for some interesting reading, and correspondingly interesting interpretations of the figures by the media.  Mineweb has reported one such analysis suggesting that India has re-overtaken China as the World No. 1 gold consumer and some figures published within the report suggest that this may be the case – but this may well depend on what the interpretation of consumption actually is.  The GFMS report suggests that Indian jewellery fabrication at 690 tonnes overtook that of China during the year, but appears to make no such bald statement that total Chinese demand fell back below that of India, although there are figures within the report which suggest this could be the case.

See: India overtakes China as world’s top gold consumer – GFMS

The GFMS report does note also, however, that Shanghai Gold Exchange (physical gold) withdrawals came in at just over 2,100 tonnes for the year and if this has not been ‘consumed’ one has to wonder where it is all going.  Indeed even published figures on gold exports from Hong Kong, plus GFMS estimates on China’s own gold output come to a total of over 1200 tonnes alone and we have demonstrated here that Hong Kong is losing its place as being a proxy for total Chinese gold imports  this was shown by noting the published data from the usgs that 32% of u.s. gold exports in october went to mainland china directly rather than via hong kong – a pattern which started in september………

To read full article on click on: Gold supply to continue in surplus this year – GFMS

Chinese gold demand 70 tonnes w/ending Jan 16th

Lawrie Williams

Note:  More detailed article now up on

Latest figures from the Shanghai Gold Exchange show that just over 70 tonnes of gold were withdrawn from the SGE for the week ending Jan 16th.  This is the 3rd highest level of gold withdrawals ever recorded by the Exchange and suggests that Chinese gold demand remains extremely strong in the runup to the Chinese New Year which falls on Feb 19th this year.  With four weeks still to go until the actual New Year date, if this level of gold demand holds up given the higher gold price, China will show a very strong start to the year, buying up far more than the global total tonnage of newly mined gold over this period on its own.

Chart of SGE gold withdrawals over past six years courtesy of Nick Laird’s website


A more detailed analysis of what the latest figures imply may be viewed on the website.


Chinese buy 29 tonnes of gold in last 3 days of 2014

Lawrence Williams

Gold demand in China remains strong in the build-up to the Lunar New Year, with gold price premiums on the SGE rising to 7%. Article as published on .  Check out Mineweb for more articles on mining, metals and minerals.

In releasing the latest information on Chinese gold withdrawals, the Shanghai Gold Exchange (SGE) both confirmed that total withdrawals for the year came to over 2,100 tonnes, only 3.6% down on the previous year’s record, but also that withdrawals for the final three trading days of the month amounted to some 29 tonnes suggesting that demand remains strong ahead of the Chinese New Year.  Indeed with a longer runup to the Lunar New Year this year – the actual date is February 19th – the second latest date in the Western calendar on which the Chinese New Year can fall, we can expect strong gold withdrawal figures out of the SGE for both January and February.

In the Chinese Zodiac 2015 is a Sheep year (also known as Goat or Ram year) and denotes both calmness and prosperity.

If last year’s pattern of gold buying ahead of this date is followed then January could be a very big month for Chinese gold demand indeed.  Last year gold withdrawals from the SGE that month were actually substantially higher than at the start of the record 2013 year – and if demand in the last quarter of 2014 is anything to go by, they could be at close to record levels again this year.  Traditionally Chinese New Year celebrations involve gold gifting, and January tends to be the month that gold traders and banks stock up ahead of the date and holiday period surrounding it.

Anecdotal reports suggest that this is already the case with high demand levels already being seen at the beginning of the month.  Reuters reports, for example, a Shanghai trader as saying “We saw consistently strong buying this week, premiums and volumes are better than what we saw in the last month.”  As confirmation SGE premiums for gold have risen to $7 an ounce as demand grows.

Withdrawals from the SGE have been averaging over 50 tonnes a week for virtually all of the past three months.  With the actual date of the Chinese New Year falling more than 2 weeks later than it did last year when it fell on January 31st we can probably expect a slower, but more prolonged, build-up this year.   Judging by the increased premiums, if the Shanghai trader is correct we could also see something of a boost in the early January figures.

Chinese gold demand already over 2,000 tonnes in 2014

Chinese gold demand already over 2,000 tonnes in 2014

By Lawrence Williams

The latest weekly gold withdrawal figures from the Shanghai Gold Exchange suggest that Chinese demand is going to get far closer to last year’s annual figure than most mainstream news media would have you believe. (SGE withdrawals are the best available proxy for actual Chinese demand). The latest figure for the week ending December 19th was a large 60.67 tonnes bringing the year to date figure to 2,015.75 tonnes, only 165 tonnes short of last year’s 2,181 tonne record.  With 1 ½ weeks of SGE withdrawal figures still to go until the year end, if withdrawals continue at the current rate it will bring this year’s total to around 2,100 tonnes – only around 4% off last year’s record figure.

It is reckoned, perhaps arguably, that SGE withdrawals equate to total Chinese gold demand – but even if they don’t they do provide an excellent year on year comparison of true Chinese demand figures.  See chart below for comparisons with prior years from Nick Laird’s excellent and websites.


Nick is a close follower of all kinds of global statistics which he publishes in graphical form and he and Koos Jansen on are the most reliable followers of Chinese gold statistics.  Koos will probably see Chinese demand figures as a few tonnes lower as the SGE figures also include movement through the new International section of the Shanghai Exchange (the SGEI) where trade is not necessarily landed on the mainland, but currently volumes are thought to be very small so will make little difference to the overall picture.

Together with the huge recent gold import figures emanating out of India (see: Indian Summer for Gold and Silver.  Can it go on?  and reports of strong demand in European nations where there remain substantial doubts about economic recovery, there seems to be little doubt that currently gold demand is exceeding new supply – possibly comfortably.  There have been relatively high sales levels out of the gold ETFs in recent months which will have helped balance the figures but these have been nothing like last year’s bleed from this source.  With the weaker ETF holders falling away this will become a diminishing source of gold for the world markets.

So it looks as if global gold demand is ending the year on a strongish note.  The gold price yesterday kicked back close to the $1,200 mark after being taken down to the low $1,970s in thin trade just before Christmas.  There does seem to be good support in and around the $1,190s, although a decisive break back above $1,200, while on the cards, is proving difficult to achieve.