Global Moves in Gold Production / Demand

Regular readers know China is both the world’s biggest producer and biggest consumer of gold, so what they are doing in both matters, a lot.  Records are just now coming out for the first half of 2018 and they paint a bullish picture with production decreasing and demand increasing.

First, on production, 1H18 saw a 7.9% decline in production to 190.3 tonne.  Last year China produced 429 tonne. This continues a trend now lasting a couple of years as production in 2016 was also higher than 2017 at 464 tonne, a 7.5% drop.  Analysts are blaming the Government’s crackdown on environmental pollution as the main reason.  

Whilst Australia and Russia are a very distant 2^nd and 3^rd behind China, where we are seeing drops in production in China, they are both increasing production (albeit only slightly in Australia).  You can see this from the table below (courtesy of Lawrie Williams):

Russia’s 2 largest miners are both flagging strong increases for the first half of 2018 of 15-18% and potentially taking Russia to 300 tonne for the year, overtaking Australia.  But before we start questioning the ‘peak gold’ calls from a number analysts (last discussed here), lets remind ourselves of the numbers.  Those 2 biggest miners in Russia are on target to produce around 127 tonne this year.  Their flagged increases equate to around 20 tonne.  China’s 7.9% drop equates to around 34 tonne.  Throw in reports now that the world’s previous biggest producer, South Africa, is looking at around a 15% drop again this year, taking their drop from those heady 1970’s to 85%.

4^th and 5^th placed North America is also seeing drops with the latest market updates from the biggest producers there (such as Barrick Gold, Agnico Eagle and Goldcorp – albeit with mines all around the world) showing falling outputs.

Back to China, and against this backdrop of falling supply, we saw an increase in demand over the same period, up 0.31% to 541.2 tonne for mainland China.  We then also saw reports of H1 imports from Switzerland of 275 tonne direct to mainland China and 125 tonne via Hong Kong taking greater China imports to a staggering 400 tonne in just 6 months.  So via its own production and Switzerland alone, greater China has consumed an annualised 1,180 tonne before imports from the likes of Australia, Russia and North America, etc are added.

The Russian’s may not be sending much as they are seemingly hell bent on keeping most of their production.  In June they added another 15.6 tonne to their reserves, taking their total to 1,944 tonne and putting them on track to exceed 2,000 tonne by year’s end.  We discussed this move here, and whilst they have bought 106 tonne of gold this year they have done so by divesting nearly all the $100b of US Treasuries they held at the start of the year.