One of the most intense debates within the gold mining sector concerns whether the maximum level of production has already been reached , what experts call ‘peak gold’ . In 2018, world production reached a new all- time high of 3,503 tonnes , marking its tenth consecutive year of growth. Will it continue to grow in the coming years?
According to S&P Global Market Intelligence , new highs will continue to be recorded during 2019 and 2020, but it is most likely that global production will begin to fall from 2021.
This would mean that the sector would link 12 consecutive years of production growth, undoubtedly a remarkable milestone for any industry. Specifically, the estimated production for the year 2020 is 3,475 tons .
According to the consultant, the current portfolio of projects is insufficient to maintain the rate of production in the long term and a greater effort would be necessary in the area of exploration , especially in larger deposits, framed within the category known as ‘Tier 1’.
From the World Gold Council , for their part, they agree on the absence of new “world-class” discoveries, which are those that have reserves of over five million ounces (155 Tm) and are capable of producing more than 250,000 ounces (7.75 Tm) of gold per year.
Another component of the gold supply, along with mining production, is recycling. It must be remembered that gold is a metal that cannot be consumed nor can it be destroyed , but rather changes its shape from the time it is extracted from the earth’s crust: Humanity has made utensils, jewelry, coins, ingots, which are then returned to melt, recovering the used metal and giving it a new life.
Our society is increasingly concerned about recycling, an issue that is added to the fact that most of the technological devices that surround us, and that each time have a shorter useful life due to their rapid obsolescence, have significant amounts of precious metals among its components.
Therefore, it is not surprising that the volume of gold from recycling is increasing : in 2018, more than 1,168 tons were obtained , an amount that is expected to grow by 1% next year, up to 1,182 tons .
As the production of gold from mining is reduced, recycling will become increasingly important, since the level of demand will continue to increase and it will be necessary to satisfy it, increasing the supply.
Otherwise, there would be a supply deficit situation (insufficient supply to meet demand), which is what has been happening in recent years in the palladium market and one of the factors why the price of this metal has risen. grownto far exceed the price of gold.
Now let’s talk about demand: the four main sectors that share the global demand for gold are jewellery, industry, investment and central banks . According to the Gold Focus 2019 report by the British consultancy Metals Focus , by the end of this year 2019, the 4,370 tons of gold that are going to be consumed will be distributed as follows: jewelry ( 2,351 Tm ), industry ( 337 Tm ), investment ( 1,082 Tm ) and official sector ( 600 Tm ). A conservative estimate, especially in the case of the official sector, as we will see in the next point.
Total demand, 4,370 tons, is about the same as last year and a far cry from the peak of 5,504 tons consumed in 2013.
Focusing on investment, the section that interests us the most, from the Department of Industry, Innovation and Science of Australia they assure that in the coming years there will be an increase in the demand for investment gold by retail clients, for very diverse (uncertainty regarding the political and economic future, fear of a possible crisis, distrust of other investment assets…) that could boost gold consumption to 1,392 tons in 2020 , a figure that had not been exceeded since 2013.
The total demand, adding the four mentioned sectors, will grow by 3.7% in 2020, reaching 4,728 tons , to fall by 4.9% in 2021 .
One of the main components of the demand and, at the same time, a determining factor for investors is the interest of the official sector, the central banks, for gold.
Last year 2018, the net purchases of gold by the official sector reached levels that had not been seen for almost half a century: close to 650 tons . For 2019, this trend is expected to continue, exceeding this historic figure: according to a Goldman Sachs report , the official sector will reach 750 tons of gold this year.
The central banks themselves recognize their interest in gold as part of the strategic reserves. A survey carried out among them by the World Gold Council yields some very significant results : 52% of the banks surveyed believe that the gold reserves of the official sector will grow over the next year and none of them believe that they will decrease.