GOLD Survey 2013 UPDATE 1
Prepared by Thomson Reuters GFMS
©2013 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. “Thomson Reuters” and the Thomson Reuters logo are trademarks of Thomson Reuters and its affiliated companies.
The cover of Gold Survey 2013 Update 1 is sponsored by the following companies:
TANAKA PRECIOUS METALS Tanaka Precious Metals is Japan’s leading precious metals refiner and manufacturer. Although best known internationally for its high specification industrial products, used in various applications ranging from semiconductors to communications, the company is also a producer and trader of a wide range of gold bullion bars and coins. Tanaka bars are acceptable “good delivery” on the London gold market.
METALS FUNDAMENTALS DATABASE
FIND DATA FAST AND REACT
COMPREHENSIVE COVERAGE
The Thomson Reuters Metals Fundamentals Database provides essential, up-to-date global statistics for all known primary aluminium, copper, zinc, lead, nickel, platinum and gold operations around the world.
The Thomson Reuters Metals Production Database provides you with an unrivalled range of content, including:
Compiled by our specialist global team through close consultation with leading industry analysts, it’s a unique and unmatched source of data. Get the deep insight into the metals market you need – all from one place.
• D etailed information on each individual mine, refinery or smelter, including historical and future production & capacity estimates, ownership structures and labor negotiations
So whether you’re a trader, broker or an analyst with an interest in the mining sector, the Thomson Reuters Metals Production Database provides all the information you need to stay ahead.
• News on developments at individual facilities
SAVE TIME, SEE FURTHER
• Archived metals stories from specialist Reuters reporters
• S ee information in context. Examine the relationship between market events and production/capacity statistics
NAVIGATE SWIFTLY THROUGH IN-DEPTH CONTENT
• S ave time. The Reuters Metals Production Database provides production statistics and global metals news in one place so there’s no need to search multiple sources • S tay up-to-date. The database shows changes in capacity and production as they happen • B ase your decisions on the very latest news from around the world. Our global team of 220 seasoned commodities journalists delivers breaking news and exclusives on metals and other factors affecting the commodities markets
• H istorical and projected capacity of base metal and gold operations, split by country, region, plant and metal
• Regular updates during the business day • N ew Projects reports detailing recent metals and mine projects or those planned for the next few years
Find what you want quickly through intuitive navigation and see it clearly. Search using a wide range of criteria, including metal or plant type, country, company, shareholding, production and capacity parameters, or display a summary page for any selected plant. • View detailed plant, country or metal summaries • Plot a historical production graph by metal type, region or country • I dentify the top ten producers or countries for a given year by metal type • Easily export data to Excel for further analysis
EASY ACCESS All this information is directly accessible from your Thomson Reuters desktop. No need to hunt through different websites or applications. • T here is a link to the Metals Fundamentals Database in the Metals Home page. (Look for the Metals Quick Links.)
Valcambi is a leader in precious metals refining and operates one of the world’s largest and most efficient integrated precious metals plants situated on a 33 hectare site, at Balerna, Switzerland.
• O r you can simply search for METALS FUNDAMENTALS DATABASE
We are also one of the world’s largest manufacturers of minted ingots. Reacting to the demands of investors in different markets around the globe we continuously carefully developing within the size range from 0,5 g to 1000 g, gold, silver, platinum and palladium minted bars in different forms and new designs. For our clients, according to their wishes we customize individually obverse and reverse of the bars, certificates and tailored packaging solutions. All products produced in our foundry and minting facilities are certified by our laboratory, carefully inspected by our operators, individually packed and controlled before shipment. The Hallmark is not only a guarantee for quality of Swiss workmanship, it guarantees also the fineness of the most sought after bars in the world, desired by precious metals connoisseurs and investors alike. A Valcambi manufactured bar is not only sold at an outstanding price but is synonymous with unique craftsmanship, guaranteed fineness, transparency and reliability. NAVIGATE STRAIGHT TO MEANINGFUL INFORMATION A clear, intuitive interface enables you to drill down quickly to explore by commodity or date – and immediately view meaningful graphs and tables, or download to Excel.
Visit thomsonreuters.com For more information, contact your representative or visit us online. The cover of the Gold Survey 2013 Update 1 features: twelve 500 gramme Tanaka cast bars, twenty nine 50 gramme Tanaka minted bars, nine 500 gramme Valcambi minted bars, nine 50 gramme Valcambi CombibarsTM and fifteen 50 gramme Valcambi minted bars. Cover designed by Russell Miller and Matt Cleveland, photography by Henrik Andersen
© Thomson Reuters 2013. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks and trademarks of Thomson Reuters and its affiliated companies. 9484083 0813.
GOLD SURVEY 2013 UPDATE 1 BY: Rhona O’Connell, Head of Metals Research & Forecasts Cameron Alexander, Manager, Regional Demand Andrew Leyland, Manager, Regional Demand William Tankard, Manager, Supply Junlu Liang, Senior Analyst Matthew Piggott, Senior Analyst Marcin Szczypka, Senior Analyst Johann Wiebe, Senior Analyst George Coles, Analyst Saida Litosh, Analyst Sudheesh Nambiath, Analyst Janette Tourney, Analyst Ryan Cochrane, Analyst Sara Zhao, Analyst
PUBLISHED SEPTEMBER 2013 BY THOMSON REUTERS GFMS The Thomson Reuters Building, 30 South Colonnade London, E14 5EP, UK E-mail:
[email protected] Web: https://thomsonreuterseikon.com/markets/metal-trading/
THOMSON REUTERS GFMS GRATEFULLY ACK NO THE FOLLOWING COMPANIES FOR THIS YE AR
www.pamp.com
www.gold.org
www.goldcorp.com
www.pretivm.com
www.cmegroup.com
Italpreziosi SPA
www.moro.si
CK NOWLEDGE THE GENEROUS SUPPORT FROM YE AR’S GOLD SURVEY AND ITS TWO UPDATES
TANAKA PRECIOUS METALS
Barrick Gold Corporation
www.standardbank.com/cib
www.randrefinery.com
www.igr.com.tr
www.cyplus.com
TABLE OF CONTENTS 1. Summary and Price Outlook
• Supply 6 • Demand 6 • Market Outlook 7
2. Gold Prices in 2013
• • • •
25
• Official Sector 25 • Scrap Supply 27
6. Fabrication Demand
18
• Mine Production 18 • Production Costs 22 • Producer Hedging 24
5. Supply From Above-Ground Stocks
11
Implied Net Investment 12 • Investment in Exchange Listed Structured Products 13 Exchange Traded Funds 13 • Commodities Exchange Activity 13 Over-the-Counter Market 15 • Physical Bar Investment 15 Official Coin Sales and Fabrication 17 • Medals and Imitation Coins 17
4. Mine Supply
8
• Price Outlook 10
3. Investment
5
29
• Europe 29 • North America 31 • Middle East 32 • Indian Sub-Continent 34 • East Asia 35
6. Price Appendix
38
Focus Boxes
• Investment in Commodities 14 • Corporate Activity 21 • A Market Rarity; Gold in Backwardation 26 • Industrial Demand 37
ACKNOWLEDGEMENTS The estimates shown in this Update for the main components of mine production, scrap, fabrication and investment demand are calculated on the basis of a detailed supply/demand analysis for each of the markets listed in the main tables. In the vast majority of cases, the information used in these analyses has been derived from visits to the countries concerned and discussions with local traders, producers, refiners, fabricators and central bankers. Although we also make use of public domain data where this is relevant, it is the information provided by our contacts which ultimately makes this Update unique. We are grateful to all of them.
© THOMSON REUTERS 2013. All content provided in this publication is owned by Thomson Reuters and/or its affiliates (the “Thomson Reuters Content”) and protected by United States and international copyright laws. Thomson Reuters retains all proprietary rights to the Thomson Reuters Content. The Thomson Reuters Content may not be reproduced, copied, manipulated, transmitted, distributed or otherwise exploited for any commercial purpose without the express written consent of Thomson Reuters. All rights are expressly reserved.
TRADEMARKS “Thomson Reuters” and the Thomson Reuters logo are trademarks of Thomson Reuters and its affiliated companies. The third party trademarks, service marks, trade names and logos featured in this publication are owned by the relevant third parties or their affiliates. No use of such mark, names or logos is permitted without the express written consent of the owner,
DISCLAIMER OF WARRANTIES AND NO RELIANCE This publication is provided by Thomson Reuters on an “as is” and “as available” basis. Thomson Reuters makes no representations or warranties of any kind, express or implied, as to the accuracy or completeness of the Thomson Reuters Content. Thomson Reuters is an aggregator and provider of information for general information purposes only and does not provide financial or other professional advice. Thomson Reuters is not responsible for any loss or damage resulting from any decisions made in reliance on the Thomson Reuters Content, including decisions relating to the sale and purchase of instruments, or risk management decisions.
GOLD SURVEY 2013 - UPDATE 1
1. SUMMARY AND PRICE OUTLOOK
The first half of 2013 saw an increase of more than 550 tonnes of gold offtake in jewellery, investment bars, coins and medals. This helped to reverse the price fall, prompting a recovery towards $1,440 by end-August. The rebound in demand was widespread, through the Middle East and South and East Asia, and highlighted the Indian government’s continued concern about the contribution of gold imports to the country’s trade deficit. This year looks set to be the first year in modern times when China will overtake India as the metal’s number one consumer, by as much as 100 tonnes.
Global mine production in the first half of 2013 increased by 3% to 1,416 tonnes. The number and scale of mines that have been placed on care and maintenance due to lower gold prices has as yet been modest, and is likely to remain so in the near term. Cost containment is emerging, though, notably through reduced capital expenditure budgets and slowing project development. Gold movements have also been heavily affected by monetary policy particularly in the United States. Now, however, professional investors have priced in the tapering of monetary stimulus and the private buyer is centre stage. The counterbalance between physical and professional demand will help to give gold some renewed relative price stability to refresh its appeal as an asset class to longer-term investors as a portfolio balancer. We expect gold to edge higher through the rest of 2013 and towards $1,500 in early 2014, before a gentle decline thereafter. The falls in the second quarter of 2013 have flushed out many weak-handed holders, but it remains questionable as to whether there will be sufficient investor appetite to absorb large quantities of gold at prices much above $1,400.
WORLD GOLD SUPPLY AND DEMAND Change Change Change (tonnes) 2012 2013F y-o-y 12.H1 12.H2 13.H1 y-o-y 13.H2F y-o-y Supply Mine production Old gold scrap
2,864
2,917
1.8%
1,374
1,490
1,416
3.0%
1,501
0.8%
1,591
1,397
-12.2%
772
819
662
-14.3%
736
-10.2%
Net producer hedging
-
Implied net disinvestment
-
Total Supply
4,455
n/a
-
-
213
-
n/a
-
-
4,527
1.6%
2,146
2,309
n/a
-
456
-
n/a
-
2,533
18.0%
2,237
n/a n/a -3.1%
Demand Fabrication Jewellery Other Total Fabrication
1,896
2,137
12.7%
926
970
1,137
22.8%
1,000
3.1%
718
823
14.6%
363
356
454
25.2%
369
3.8%
1,369
3.2%
2,615
2,960
13.2%
1,289
1,326
1,591
23.5%
Net official sector purchases
544
361
-33.6%
281
263
191
-32.0%
Physical bar investment
945
1,166
23.4%
477
468
725
52.0%
Net producer de-hedging
40
40
-0.2%
9
30
26
Implied net investment
312
n/a
90
222
1.6%
2,146
2,309
Total Demand London PM fix, US$/oz
4,455
- 4,527
1,668.98 1,446.00
- 2,533
-13.4% 1,651.34 1,686.34 1,523.29
170 -35.3% 441
-5.7%
177.2%
14
-54.1%
n/a
243
9.4%
18.0%
2,237
-3.1%
-7.8% 1,369.00 -18.8%
Source: Thomson Reuters GFMS Totals may not add due to independent rounding. Net producer hedging is the change in the physical market impact of mining companies’ gold loans, forwards and options positions. Implied net investment is the residual from combining all other Thomson Reuters GFMS data on gold supply/demand as shown in the Summary Table. As such, it captures the net physical impact of all transactions not covered by the other supply/demand variables.
5
SUMMARY AND PRICE OUTLOOK
The first eight months of 2013 saw a major rebalancing in the gold market with an exodus of professional investors countered by an explosion in grass roots demand. From their peak at the start of the year through to early August, Exchange Traded Fund (ETF) holdings fell by 26% and this, coupled with the withdrawal of momentum-driven money, contributed to a 30% intraday price decline from the high of $1,696/oz in January to a low of $1,181/oz at end-June. The price fall triggered a huge leap in physical bar-hoarding and coin demand, while also marking a possible end to the decade-long substitution away from gold in the jewellery market.
GOLD SURVEY 2013 - UPDATE 1
DEMAND
——Mine production was 3% higher in the first half
——Jewellery fabrication jumped by 22.8% in the first
compared with the first half of 2012 —— Global scrap supply fell 14% to an estimated 662 tonnes chiefly as a result of weaker gold prices.
——First half industrial demand slipped by 1.3%. ——Net official sector purchases dropped by 32.0% to
half, in response to a marked decline in gold prices.
Global mine production in the first half of 2013 increased by 41 tonnes or 3%, to total 1,416 tonnes. Geographically, gains were diverse, with notable increases in China, the Dominican Republic, Canada and Russia. In several instances, especially the Dominican Republic and Canada, these gains were driven by capacity additions from new projects ramping up output. Production that has been put onto care-and-maintenance as a result of lower gold prices has been modest and we expect little change to this in the near term. Mining companies are, though, implementing cost containment measures, via the reduction of capital expenditure and the slowing of project development, this has been accompanied by large-scale asset impairment charges recorded by many of the major producers. Global scrap supply fell by 14% in the first half of 2013 to an estimated 662 tonnes. A declining price trend in the first quarter followed by the acute price correction in mid-April and again in June led to a notable reduction in recycling across most key regions. Sizeable falls were recorded in both the industrialised and developing world with double digit declines commonplace across most markets. The largest drop was recorded in India where scrap supply slumped by 45% for the period due to a weaker rupee gold price, assisted in the main by a near 70% year-on-year decline in the second quarter. Elsewhere, scrap recycling followed a similar trajectory with first half supply dragged down by a 22% year-onyear drop in global return in the second quarter. Scrap from Europe and East Asia fell by 13% year-on-year, while supply from the Middle East retreated 15% from last year. GOLD PRICE AND TRADE WEIGHTED DOLLAR Ch1 Gold price and TW$
60 Gold Price
1600
70
1200
80 Trade Weighted Dollar
800
90
400
100
0 H1-03 H1-05 H1-07 Source: Thomson Reuters GFMS
6
H1-09
H1-11
110 H1-13
Trade Weighted Dollar Index (H1.03=100, inverted)
2000
US$/oz (period average)
SUMMARY AND PRICE OUTLOOK
SUPPLY
191 tonnes in the first half of 2013. ——Producers’ dehedging increased, with some miners taking advantage of lower prices to close positions. ——World Investment plunged by 28.3% to 517 tonnes.
Jewellery fabrication in the first half of 2013 rose by a substantial 22.8% year-on-year and, in terms excluding scrap, by an even more buoyant 42.8%. It should be of little surprise to see such a strong performance, given the 8% decline in the average gold price, with gains largely driven by a surge in demand for jewellery across much of the key consuming markets in the developing world in response to the gold price correction. Much of the first half growth of 211 tonnes, however, was the result of gains in China and India, which saw combined demand rise by over 170 tonnes, representing approximately 80% of the period’s total gains. Excluding these two countries from the global total shows that jewellery offtake in the rest of the world grew by 10.2%. Indian jewellery fabrication jumped by 25% in the first half of the year to almost 350 tonnes, as demand for jewellery soared in the second quarter in response to the price retreat. Similarly, lower gold prices were the main driver behind a notable growth in China, which enjoyed a 41% or near 100 tonne rise, to a record of 345 tonnes. Elsewhere, given its historical price sensitivity, it is not surprising that jewellery fabrication in the Middle East rose by 19% year-on-year, with double-digit percentage gains across much of the region. Turning to the industrialised world, jewellery fabrication in the United States was up by 8% in the first half, due to a combination of weaker gold prices and improving consumer sentiment. By contrast, European jewellery fabrication continued to decline, registering a 5% drop in the first half, as a result of ongoing structural changes (such as a shift from plain jewellery pieces towards gemset) and a still challenging economic environment, although weaker gold prices helped to mitigate the losses somewhat. Industrial fabrication dropped by 1.3% in the first half; much of that was driven by the 9.2% drop in dental offtake due to ongoing substitution. Demand for electronics and other industrial & decorative uses remained flat year-on-year.
GOLD SURVEY 2013 - UPDATE 1
World Investment slumped by 28.3% year-on-year to 517 tonnes in the first half of 2013, the lowest figure since 2009. If measured in dollar terms, the fall was even steeper, with the equivalent value of this demand dropping by almost 34% to roughly $25 bn. Such a considerable fall was almost entirely a result of heavy liquidation by institutional investors. Illustrative of the trend was implied net disinvestment, which reached 456 tonnes in the first half. There were several reasons behind this growing disenchantment with gold. First and foremost, increasing perceptions that the decadelong gold bull market would soon come to an end seems to have encouraged a wave of profit taking, especially in light of improving yields in traditional assets such as equities. While the initial selling was relatively modest, investor sentiment was soon hit by the news in mid-April that the European Commission had suggested that Cyprus sell gold reserves to raise funds. The situation was then exacerbated by rising expectations that the Federal Reserve would soon begin tapering its QE programme, further reducing gold’s safe haven appeal.
While demand from the key consuming markets may well slacken somewhat, we expect restrained supply to remain in place in the second half. Our forecast is primarily based on an assumption that scrap supply will fall by 12.2% on a year-on-year basis, as a return to mid-$1,400s will not be sufficient to stimulate a wave of recycling. At the same time, mine production is expected to rise marginally. More importantly, despite a hefty price decline, producers have so far remained resistant to engaging in hedging as a strategy for preserving revenue. The underlying surplus in the gold market (which has ballooned in recent years) is therefore likely to shrink by a fair amount this year. This, along with a probable recovery in buy-side interest from professional investors and ongoing central bank purchases, should pave the way for a decent price recovery later this year. WORLD GOLD FABRICATION LESS SCRAP SUPPLY 1600
2100 1800
Gold Price 1200
1500 *
800
1200 900
US$/oz
While the first half witnessed substantial selling from institutional investors, this was more than offset by a surge in bargain hunting from small retail investors in almost every key market, led by China and India. For instance, bar investment jumped by 52% to a new record of 725 tonnes, while demand for official coins and medals & imitation coins also reported heavy gains. Nevertheless, as demand in many regional markets tends to be price sensitive, volumes started to ease following the buying frenzy in late April and early May.
Notable improvements in gold’s underlying supply/ demand fundamentals, and a rush to physical gold in particular, have been among the key factors to provide some cushion to gold following two price crashes in the second quarter. Nevertheless, while we remain generally positive about physical demand, such heightened volumes will prove hard to sustain for the rest of the year. Furthermore, while we have witnessed widespread gains in physical offtake in the year-to-date, the gold market has still relied heavily on India and China, with their combined share of global gold demand standing at 54% in the first half. With a weakening Indian rupee and a series of measures by the government to curb gold imports, demand in India is forecast to be some way short of the elevated level in the second quarter. Turning to China, the prospect for local demand is more promising, but growth is expected to cool down once the general public starts to become accustomed to new price levels and bargain hunting recedes.
Tonnes
Net official sector purchases slowed notably in the first six months of 2013, falling by 32.0% to 191 tonnes. Nevertheless, it is important to stress that, despite the hefty drop, the absolute total stayed relatively high by historical standards, as the argument for reserve diversification for developing countries remained in place. Consistent with the trend in the previous year, the bulk of gross official sector purchases was accounted for by emerging market countries, although the sharp rise in gold price volatility seems to have deterred certain central banks from making fresh purchases.
MARKET OUTLOOK
600
400
* 300
0 H1-03 H1-05 H1-07 H1-09 Source: Thomson Reuters GFMS *Forecast; Fabrication excludes all coins
0 H1-11
H1-13
7
SUMMARY AND PRICE OUTLOOK
Producer de-hedging contributed a net 26 tonnes of demand in the first half-year. While it could be assumed that as the price fell steeply gold miners would have moved to hedging, so far they have largely kept clear. Indeed, many Australian focused producers took the opportunity actively to close out hedges as prices fell, continuing the global trend of overall reductions.
GOLD SURVEY 2013 - UPDATE 1
GOLD PRICES, 2012 - 2013
2. GOLD PRICES IN 2013
•
Gold showed a two-legged violent correction in the first half-year, driven by emerging profit taking after a 13-year bull run, in combination with a strengthening US economy.
12.H1 US$/oz Euro/kg
Yen/g Yuan/g
•
The price fell 30% year-on-year in the first half to an intra-day low of $1,181/oz in June, stimulating further large UK-led ETF outflows. Demand for physical metal surged, particularly from Asia, providing a floor for the falling price.
37,339
4,231
4,324
4,671
10.4%
-17.8%
341.31
302.61
-9.8%
-30.7%
459,761 450,637
7.1%
-14.7%
-6.1%
-17.7%
335.62
A$/oz
1,597.17 1,623.50
Rph/g
-8.7% -25.9%
1,513.63
1,711.56 1,500.34
-6.7% -22.2%
95.35
97.35
88.66
-7.0%
-23.6%
28,579
30,873
28,734
0.5%
-18.0%
517,906 476,289
-2.1%
-25.1%
486,474
Source: Thomson Reuters GFMS
Gold prices in virtually every other currency saw large declines on an intra-year basis, with the Euro/kg, Yuan/g and Rph/g falls all considerable at 26%, 31% and 25% respectively. Year-on-year, gold prices in most currencies fell between 2-10%, except in Japan and South Africa. Gold started 2013 with a modest rally driven in part by the ongoing difficulties surrounding the fiscal cliff in the US. However, the upturn turned out to be of short duration as various gold-negative factors bit by bit started to unwind. Indeed, the year began with increased wariness among investors who were concerned about gold’s ability to stage another year of price increases following a 13-year bull run. As a consequence, some profit taking emerged, driven also by largely diminished concerns over the European sovereign debt crisis, in combination with a rising risk-on attitude from investors, allocating increased funds into rising equity markets.
Indeed, after various failed attempts to regain some of its lost ground in March, gold fell off a cliff and recorded its largest two day decline in its recent bull-run, shaving off nearly $228/oz or 28% from the annual high to a low of 1,321/oz in mid-April. In the following two months a bounce emerged forming, from a technical point of view, a cup-and-handle formation, which implied that another correction was on the horizon. Consequently, gold proceeded with a second leg to the downside, albeit less pronounced than the previous one, falling another $156/oz from the previous low to $1,181/oz by end-June, representing a total first-half high-to-low price decline of $374 or 30%.
This development was particularly reflected in gold ETFs, which slowly but surely started to witness outflows across
GOLD PRICE AND TRADE-WEIGHTED DOLLAR (INVERTED) - DAILY 2000
1800
Gold Price
1400
1200
FED announced it could start slowing asset purchases 95 EC annouces by end-2013 Cyprus to sell depending on €400mn worth economic of gold conditions
100
Trade Weighted Dollar
Fed launches QE3 and anticipates low interest rates to mid-2015 S&P downgrades German court ratifies 9 Eurozone Francois Hollande Eurozone permanent 105 FED will keep int rate nations, 14 put on elected as rescue fund near zero until unplment ECB cuts int negative outlook French President India raises falls below 6.5% rate to new low ECB announces Barack Obama ECB launches Fed extends “Operation “unlimited” bond re-elected President Obama signs 0.5% amid region’s import duty second round of LTRO Twist”until year-end buying scheme US President bill to avoid “fiscal cliff” ongoing worries on gold to 10%
1000 Jan-12 Feb Mar Apr Source: Thomson Reuters GFMS
8
90
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec Jan-13 Feb
Mar
Apr
May
Jun
Jul
Aug
110 Sep
Trade Weighted Dollar (Inverted, 3rd Jan=100)
Fed says interest FOMC minutes President Obama Mario Draghi pledges Indian goverment raises rates to stay low released, no sign to do “whatever import tax on gold and platinum signs into effect until at least 2014 of QE3 spending cuts it takes” to save from 4% to 6% Spain seeks known as sequester the euro banking rescue
1600 US$/oz
GOLD PRICES
42,584
420,921
Rps/10g
-7.8% -29.6%
40,913
Rand/kg
TL/g
% change y-o-y 13.H1 13.H1 average intra-year
1,651.34 1,686.34 1,523.29
Rouble/g 1,621.45
Gold opened the year at $1,694/oz, a level almost $96/oz above that recorded in 2012. However, the relatively positive year-on-year comparison was not matched by an equally strong performance, as the opening of the year turned out to be just $3/oz shy of the first half peak. Indeed, gold was trending in a downward channel that started in October the prior year and tested the upper parallel during January 2013. However, in February, gold showed considerable weakness by falling $90/oz towards the channel’s floor at $1,555/oz, which turned out to be a presage of what was about to come.
12.H2
GOLD SURVEY 2013 - UPDATE 1
the board. Indeed, in the first quarter, various funds such as SPDR, iShares Gold Trust and ETFS Physical Gold all recorded net outflows of 10%, 3% and 7% respectively. On Comex also, sentiment turned sour with a recordbreaking build in speculative short positions, which totalled some 447 tonnes in mid-July.
VOLATILITY (US$ SPOT) 2007
2008
2009
2010
2011
2012
15.8%
31.7%
21.4%
15.9%
21.4%
16.5%
12.Q1
12.Q2
12.Q3
12.Q4
13.Q1
13.Q2
20.0%
19.8%
14.3%
11.7%
11.9%
10.7%
GOLD PRICE CORRELATIONS*
However, the central bank of Cyprus kept its independence and the country received its bail-out without having to sell any of its gold reserves. This was well received by the market and gold bounced accordingly, from an intermediate low of $1,321/oz to as high as $1,488/oz during early May. Investors, however, continued allocating their funds into higher yielding assets, mainly driven by a series of optimistic US data releases, which in turn fuelled the debate at the Fed to start tapering later in the year. Consequently, gold plateaued in a range of $1,400-1,440/oz, then shortly after started its second leg to the downside in mid-June. PRODUCTION & CONSUMPTION-WEIGHTED GOLD PRICES
12.Q3
13.Q2
0.09
0.37
Silver
0.69 0.50 0.51 0.78
Oil (WTI)
0.24
0.26
0.25
0.40
CRB Index
0.12
0.18
0.12
0.47
S&P 500
0.27
0.11
0.11
0.31
Comex ‘Investor’
0.83
0.75
0.88
-0.15
*basis daily log-returns, save for non-commercial & non-reportable net Comex positions where weekly. Source: Thomson Reuters GFMS
ETF outflows continued throughout the second quarter, with holdings falling 22% over the half. Meanwhile what had become obvious was the strong divergence between the paper and the physical market. Indeed, as bearish sentiment prevailed in digitally traded gold, physical demand such as bars, coins and jewellery surged, particularly from the Far East. Strong trade flows were recorded between the UK and Switzerland, where Good Delivery metal was refined to smaller bars and shipped to India and China. This development, however, was not well received by the Indian government, which was suffering from a burgeoning current account deficit. Duty on gold imports was raised several times, eventually reaching 10%, which did slightly curb the balance, but also stimulated unofficial inflows. However, all negative spill-over effects aside, the strength in physical demand did eventually provide a price floor above $1,180/oz at the end of June. DAILY GOLD PRICE VOLATILITY & LEASING RATES 40
175
Consumption Price
125
Production Price
75 Jan-09 Jan-10 Source: Thomson Reuters
Jan-11
Jan-12
Jan-13
0.5 Leasing Rate
30
0.0
20
-0.5
10
-1.0
0 Jan-10 Jul Jan-11 Source: Thomson Reuters
1-month Leasing Rate (%)
150
Rolling 1-month volatility (%, annualised)
Real Gold Price
Index, January 2009 = 100
13.Q1
0.21
0.53
200
100
12.Q4
US$/Euro Rate
Volatility Jul
Jan-12
Jul
Jan-13
Jul
-1.5
9
GOLD PRICES
By now, sentiment clearly had turned bearish which stimulated a nervous sentiment in the market. Therefore, when the European Commission suggested that the Cypriot central bank should sell €400M (equivalent to ten tonnes at that point) of its gold holdings to finance part of its European rescue package, the gold price started to drop and this quickly developed into a violent move down, as hoards of investors and speculators headed for the exit. In the grand scheme of things, Cyprus’ potential gold sale of 10 tonnes was almost negligible; what spooked investors was the possibility that the independence of various European-based central banks would become jeopardised, particularly if ‘The Troika’ were to obtain authority to force cash strapped nations to sell gold holdings in order to receive funding. Were Italy or Spain forced to take similar measures, for example, the impact on the market would be far more pronounced.
GOLD SURVEY 2013 - UPDATE 1
GOLD, OIL AND THE CRB INDEX
GOLD AND Ch2PRICE Gold price andUS$/EURO US$/euro 2000
125
1.6
1800
100
US$/oz
1600
75
CRB
50 Jan-12 Apr Source: Thomson Reuters
GOLD PRICES
1400
1.4 US:€
1.3
1200
Jul
Oct
Jan-13
Apr
Jul
PRICE OUTLOOK Following the strong price correction in the first half-year, gold showed considerable resilience by staging a 21% recovery from June lows to as high as $1,433/oz by the end of August. Much of the increase was supported by a professional investor-led short-covering rally, on top of strong physical demand from Asia and the Middle East. This in conjunction with restrained supply pushed gold into backwardation, a phenomenon last witnessed in 1999 when, as part of the Central Bank Gold Agreement, the signatories stated that they would not be expanding their existing lent gold positions. Gold’s ability to stage further price gains for the remainder of the year will largely depend on developments in the US and its labour market which, while still fragile, has shown improvements in recent months. Indeed, particularly since the Fed has tied its QE mandate towards developments in the unemployment rate, the FOMC meetings and the non-farm payroll releases have almost become price trend determining events. Consequently, despite stock markets around the world having shown signs of considerable weakness at times, the general trend is still up and new highs are still being recorded. It looks unlikely that this will change much this year, particularly if the US continues to present solid underlying macroeconomic figures with the dollar consequently remaining resilient. In general, we remain of the view that the gold market remains cautious. Be that as it may, there are several factors still present in the market that support a case for a stronger gold price. Indeed, despite the labour market improving, investors might argue that the current unemployment rate of 7.4% is still well away from the 6.5% threshold level that the Fed has indicated as a starting point for a more dovish macroeconomic course. And even when stimulus is scaled back, the exit will be long and gradual
10
1.5
Gold Price
Oil
1000 Jan-12 Apr Jul Source: Thomson Reuters GFMS
US$:€
Index, 4th January 2012= 100
Gold
1.2
1.1 Oct
Jan-13
Apr
Jul
as the country’s underlying economy is still fragile with only moderate inflation pressures. We expect very loose monetary policies to remain in place for an extended period with the low interest environment extending throughout 2015. Elsewhere, central banks in other key economic countries have also stated a preference towards maintaining loose policy in order not to choke off their improving economies. In addition, as we head into festival periods for jewellery purchases (particularly in China and India) further interest for physical demand in Asia is likely. However, recent geopolitical tensions regarding Syria could lead to a wider Middle East conflict, which could in turn stimulate another short covering rally as net positions on Comex have left room for that to emerge. In summary, the argument for investing in gold should remain in place for long-term investors, although short term challenges remain on the horizon. Taking all into consideration, gold should continue its upward trend in the fourth quarter and test $1,480/oz, the level where the second major correction started to decelerate back in May of this year. With a little bit of momentum, gold could test the psychologically important $1,500/ oz level and possibly have a look at the major $1,526/ oz resistance area in as early as the first quarter of the next year, being it mainly due to seasonal reasons. This scenario would be most likely in the event that the Fed held off tapering until at least late 2014, as we imply above. If tapering were announced sooner rather than later, gold would likely stage another leg to the downside potentially testing the June lows, which would not be a particularly bright start to the New Year.
GOLD SURVEY 2013 - UPDATE 1
3. INVESTMENT •
World Investment weakened by 28% to 517 tonnes in the first half of 2013, with the fall in the equivalent value of this demand even steeper.
•
The hefty decline was due entirely to 456 tonnes of implied net disinvestment, reflecting aggressive selling from institutional investors over the period.
Investment demand remained the main driver of price fluctuations throughout the first half of 2013. At present, World Investment is estimated to have tumbled by 28% to 517 tonnes in the first half of 2013, the lowest halfyearly figure since the onset of the global financial crisis. The picture is even more disappointing if measured in dollar terms, with the approximate value of this demand plunging by 34% to $25 bn. The fall was largely attributable to heavy investment outflows from institutional players, especially mutual and hedge funds. This is highlighted in our implied net investment figure, a proxy for institutional investor activity, which shifted to negative territory and hit minus 456 tonnes in the first half. By contrast, interest in gold from retail investors (who historically dominate purchases of physical bullion products) soared in the first half, with our estimates for both bars and coins reaching record highs in our data series (on a half-yearly basis).
WORLD INVESTMENT (tonnes)
Another key factor that encouraged funds to cut their exposure to gold was the yellow metal’s fading appeal as a safe haven. In part, this reflected an absence of imminent inflationary pressure in the key economies and growing expectations that the Fed would start to taper its asset purchase programmes sooner than had been expected. Even though real interest rates remained negative in many countries, improving returns on traditional assets raise the opportunity cost of carrying bullion. Also of importance have been less acute fears about the sovereign debt situation in Europe. A generally more cautious attitude towards the overall commodities complex among institutional investors also restrained gold investment in the first half of the year. Apart from a relatively strong dollar, a slowdown in emerging market countries and increasing concerns that the commodity supercycle could soon come to an end seems to have weighed on investor sentiment. That said, it is of note that the bulk of these aforementioned outflows in the first half stemmed from loose-handed investors, particularly those that were technically driven. By contrast, substantial core long positions were maintained by long-term investors, despite increasing headwinds on the gold price. KEY MARKET INDICATORS
12.H1
12.H2
Implied Net Investment*
90
222
-456
243
(end-period) August Change 2012 2013 y-o-y
Physical Bar Investment
477
468
725
441
S&P 500
1,426
1,633
16%
12%
484
473
-4%
-2% -39%
Official Coins Medals and Imitation Coins Total Indicative Value US$ (bn)**
13.H1 13.H2F
104
93
179
127
CRB Index
49
64
69
40
XAU Index
721 38
847 46
517
851
25
*Implied net investment is the residual from combining all of the other Thomson Reuters GFMS data on gold supply/demand as shown in the Summary Table.
37
Intra- year
166
103
-39%
2.94%
3.68%
n/a
n/a
1,657.50
1,394.75
-15%
-18%
Contango (3-mth)
0.35%
0.03%
n/a
n/a
US$ Libor (3-mth)
0.31%
0.26%
n/a
n/a
US 30-year Bond Gold Price $/oz
Source: Thomson Reuters
As such it captures the net physical impact of all transactions not covered by the other supply/demand variables. **Indicative values calculated using average gold prices.
11
INVESTMENT
With regard to the drivers of gold investment demand, economic developments in the United States were probably the single most important factor at play, particularly in relation to their impact on the Fed’s monetary policy and professional investors’ assessment of risk. Indeed, as the “fiscal cliff” was avoided at the start of 2013 and the country’s economy continued to gain momentum, asset managers started to pile money
back into the equity market. Supporting the view was a generally disappointed gold investor community, which, after the summer rally in 2012, generally had been expecting gold to breach the $1,800 mark, and which instead was faced with a poorly performing yellow metal. As expectations grew that the decade-long bull market might soon come to an end, a rising number of funds took profits in gold with a view to moving back to highyielding assets.
GOLD SURVEY 2013 - UPDATE 1
Looking ahead, although an improving outlook for the US economy has raised the probability that the Fed will start to scale back its stimuli after its September FOMC meeting, the majority of the negative factors have already been “priced in” by the market. Furthermore, we would expect major central banks, including the Fed, to maintain accommodative monetary policy, while liquidity will remain ample for an extended period. The argument for gold investment therefore should remain intact for long-term investors. In addition, as the new round of debt negotiations starts in the United States, the scope for a further rise in the equity market could be somewhat limited. As the bulk of the speculative froth has already been removed from the market, this leaves plenty of room for a decent rebound in investment inflows to gold. WORLD INVESTMENT
1250
Coins**
liquidation of investor positions on Comex, saw implied net disinvestment of 456 tonnes in the first half of 2013.
The implied net (dis)investment figure is not independently calculated, but derived as the item which brings gold supply and demand into balance. The figure should therefore not be seen as an exact tonnage equivalent but instead an indication of investment activity separate from retail bar and coin demand. Additionally, although a substantial majority of this tonnage will reflect such activity, implied net (dis)investment could also include other flows that, technically, are outside the definition of investment. One example is the impact of any central bank activity that is not being picked up in our official sector figures and that would, as a result, be absorbed within our implied net (dis)investment category. Despite this caveat, implied net (dis)investment typically does provide a clear indication of the overall impact of investor activity on the market for the period discussed. Furthermore, using information collected through field research and publicly available data, Thomson Reuters GFMS performs a ‘reality check’ on these values. Our implied figure turned negative in the first half of this year, with net disinvestment totalling 456 tonnes, a sharp contrast to the same period of last year when the market saw implied net investment of 90 tonnes. A close analysis of quarterly developments suggests that this was, in some part, due to a higher disinvestment figure in the first three months of 2013 compared with the corresponding period in 2012. The majority, however, took place in the second quarter, which saw net disinvestment of close to 330 tonnes, a dramatic change from a year earlier, with 112 tonnes of positive demand.
3.0
2000
Implied Net (Dis)investment
2000
Gold Price
Physical Bar Investment 1800 2.5
*
1600
250
1400
Benchmark curve (2yr-10yr spread)
2.0
1200
0
US$/oz
*
500
1500 US$/oz
750
1000 1.5
1000
The Benchmark yield curve reflects inflationary expectations
Gold price
-500 H1-09 H1-10 H1-11 H1-12 Source: Thomson Reuters GFMS *Forecast; **Official coins and medals & imitation coins
12
——Substantial ETF outflows, combined with heavy
GOLD AND THE BENCHMARK YIELD CURVE
1000
-250
IMPLIED NET INVESTMENT
%
1500
Tonnes
INVESTMENT
It is also interesting to note that while the first half of 2013 witnessed considerable selling from institutional investors, appetite for physical gold investment products at the “gross roots” level showed an extraordinary rise over the same period. Such a divergent outcome is largely related to the fact that small retail investors, particularly those in the developing world, tend to be price sensitive. As the gold price recorded its largest oneday drop in more than three decades in mid-April, it is not surprising that bargain hunting exploded in almost every major consuming market across Asia and the Middle East. Nevertheless, as gold prices continued to weaken and bearish sentiment started to develop, demand for bullion coins and bars in response to the second price dip in late June was more restrained, although volumes were still healthy. Turning to western markets, retail investment also posted healthy gains in the first half. Notably weaker prices were obviously important to the rise, but a more fitting interpretation of these gains is that ongoing uncertainty regarding the economic and fiscal situations encouraged certain “buy-and-hold” investors to take advantage of lower prices to add gold holdings as a means of wealth preservation.
800 H1-13
1.0 Jan-10
500 Jan-11
Source: Thomson Reuters
Jan-12
Jan-13
GOLD SURVEY 2013 - UPDATE 1
GOLD ETFS AND OTHER SECURITISED PRODUCTS 2800 2400
Tonnes
2000 1600 1200
2000
Other iShares Gold
1600
SPDR Gold Shares NewGold
1200
GBS (LSE listed) Gold Price
800
800 400
400
It is interesting to examine how the implied figure compares with information on activity within the different arenas of gold investment (although given aforementioned limitations in this information, it is not possible to disaggregate accurately the implied figure into these components). Due to the nature of gold ETFs and other similar products, we are certain that the near 580-tonne decline in ETF holdings had a one-to-one impact on the volume of investment. The picture is somewhat more opaque when it comes to the futures and OTC markets. As for the former, at end-June, noncommercial and non-reportable net positions in Comex futures were 477 tonnes lower than the end-2012 figure. Turning to the OTC market, however, the first half-year saw robust volumes of investment.
INVESTMENT IN EXCHANGE LISTED STRUCTURED PRODUCTS ——Demand for exchange listed structured products
Investor interest in certificates and warrants was once again limited in the first half, particularly when it came to its net impact on the physical market and the gold price. As we have discussed in previous Surveys, this is strongly related to a structural issue with the market in recent years, as small retail investors interested in the yellow metal have tended to shy away from leveraged paper products and opted for the more conservative option such as physical bullion bars and coins.
EXCHANGE TRADED FUNDS
0 Jan-04
0 Jan-06
Jan-08
Jan-10
Jan-12
Jan-13
Source: Thomson Reuters GFMS, collated from respective ETF issuers’ data
net daily dollar outflow was $27.4 billion. While the first three months of the year registered heavy outflows, the bulk of the first half’s drop was concentrated in the second quarter, which saw the largest quarterly redemption of over 400 tonnes since the launch of the first gold ETF in early 2003. The key reason behind the selling at the start of the year was growing speculation that the Fed may end its monetary stimulus earlier than expected as the US economy continued to show signs of improvement, which reduced gold’s safe haven appeal. As we moved further into the second quarter, the fall was exacerbated by politicians’ suggestions in mid-April that Cyprus should sell from its national gold reserves to help its fiscal situation, which translated into heavy ETF outflows of some 175 tonnes during the month. While the pace of selling then somewhat abated, investors remained firmly on the sell-side, driving total ETF holdings to a multiyear low of 2,112 tonnes at end-June. The largest decline during the first half was registered by SPDR Gold Shares, which saw an outflow of some 380 tonnes, representing almost two-thirds of the period’s total losses.
COMMODITIES EXCHANGES ACTIVITY ——Trading volumes on major commodity exchanges posted strong performance in the first half of 2013.
COMEX ——Total ETF holdings dropped by 22% in the first half of 2013, to its lowest level since June 2010.
Combined ETF holdings dropped by nearly 580 tonnes during the first half, to 2,112 tonnes at end-June, down by 22% from a record high of almost 2,700 tonnes at the start of the year. In value terms, the decline was even more material at 44%, with total holdings at end-June amounting to approximately $80 billion, while the total
Total volumes in gold futures traded on Comex in the first half of 2013 rose by 10% to just above 26 million contracts, equivalent to a nominal daily average of 653 tonnes. Open interest (409,081 contracts) by endJune was down 2% against a year previously. Analysis of the data published by CFTC in its weekly reports on non-commercial and non-reportable net positions in Comex futures can be used as a proxy for investor
13
INVESTMENT
remained lacklustre in first half of 2013.
US$/oz
The key driver behind the selling in the first half of the year was growing optimism that the US economy was gaining traction, which generated concerns that the Fed could end its bond purchase programme sooner than previously expected and which thus significantly reduced investor appetite for safe haven assets. This translated into dramatic selling on Comex, with net positions dropping to a multi-year low by end-June, coupled with heavy outflows from gold ETFs.
GOLD SURVEY 2013 - UPDATE 1
INVESTMENT IN COMMODITIES
Since this time, and as shown in the chart below, the net-length seen in the gold market has recovered in value terms, and gold
The chart below illustrates quarterly data that Thomson Reuters
still remains second only to crude oil on this basis. Indeed it is
GFMS has compiled on net investor positions in 22 futures
the more liquid asset classes that have picked up most net-
contracts using CFTC data (non-commercial and non-reportable
length since a significant pullback in the second quarter saw
categories). Although this captures only a partial view of
33% of the value of Comex positions lost, equivalent to $24 bn.
the commodities universe, it nonetheless provides a useful indication of prevailing market trends.
The major change in the commodities investor space has been the large crude oil positions built up in the energy sector, as
So far 2013 has seen a lack of investor confidence across asset
a tentative economic recovery has gained traction along with
classes and this has seen a number of swings in investment
a substantial risk premium associated with the Middle East.
flows both into and out of commodity markets. In gold the
Concern over Iranian, Iraqi and Libyan supply and the possibility
net speculative long position was in July at its lowest since
of a regional conflagration stemming from the Syrian conflict
2001 as record short positions were built. During this time
have all weighed heavily on markets.
Comex speculative shorts reached all-time highs, equating to 447 tonnes, before a subsequent short-covering rally helped
Those that have fallen from favour appear to be the less liquid
prices to recover. The short positions were built alongside the
asset classes that had attracted investor interest throughout the
689 tonne exodus from ETF holdings seen between January and
credit crisis and recession as capable of providing a short-term
August that saw gold’s thirteen year bull run come to an end.
return. Net-length in our Other (primarily soft commodity) and Livestock categories have seen net-speculative length fall from a
VALUE OF NON-COMMERCIAL & NON-REPORTABLE NET POSITIONS IN 22 COMMODITY FUTURES CONTRACTS 140 120
INVESTMENT
US$ Billion
100 80
Other*
peak of $56 bn late 2010 to $17.8 bn in late August 2013. Those commodities still carrying significant speculative long-positions include soybeans ($12.4 bn), cotton ($3.3 bn) and cocoa ($1.6 bn).
Livestock Energy Silver
Many funds have re-weighted towards equity markets in 2013
Gold
and this trend is thought likely to continue. Investor interest in commodities has grown substantially since the commodities
60
boom began however and lack of investment on the supply side
40
of many markets being seen today is already sowing the seeds
20
of the next market shortages. Likewise the potential for higher
0
cyclical demand growth in both the developed economics and
-20 Q1-08 Q1-09 Q1-10 Source: Thomson Reuters GFMS
developing markets is likely to see continued investor interest in Q1-11
Q1-12
Q1-13
commodities markets moving forward.
*Other includes soft, agricultural and dairy commodities, platinum, palladium and copper
activity on the exchange. The first half of the year was characterised by aggressive long liquidation coupled with a rapid expansion in gross short positions. From an opening of 555 tonnes, net “investor” positions tumbled by 80% to below 110 tonnes by late June (the lowest level since September 2002), and this was a key factor behind the dramatic fall in the gold price over the period. The main driver of heavy sell-offs seen in the first half was an improving US economy along with growing speculation that the Fed could start to taper its stimulus programme sooner than expected, which weighed heavily on investor attitude towards gold. Meanwhile, an absence of nearterm inflation pressure and less acute concerns about the sovereign debt situation in Europe and the United States also further undermined gold’s safe haven appeal.
14
OTHER EXCHANGES While global futures trading has been for long dominated by Comex, the last few years have witnessed strong investor activity on a number of other commodity exchanges around the world, particularly in China and India, helped by market liberalisation and an increase in investor interest in commodities. The first half of 2013 saw a significant rise in trading volumes on the Shanghai Gold Exchange (SGE). Turnover for the spot contract (AU9999 and AU9995) more than doubled to reach 1,981 tonnes in the first half year. Along with this was a massive increase in delivery of physical gold out of the exchange’s vault and a sharp rise in daily premia, which hit an all-time-high of $56/oz
GOLD SURVEY 2013 - UPDATE 1
COMEX, NYSE, LIFFE & TOCOM FUTURES
GOLD TRADED ON OTHER EXCHANGES
(total volume in nominal tonne equivalents) 11.H2 12.H1 12.H2 Comex
13.H1
80,914 73,845 62,679 80,981
Tocom
8,517
5,940
5,955
7,510
NYSE Liffe*
1,341
631
496
711
(total volume in nominal tonne equivalents) 11.H2 12.H1 12.H2 SGE Spot SGE AU(T+D)
13.H1
942
970
931
1,981
3,474
2,176
2,049
3,055
SHFE
12,501
6,414
5,420
7,301
*Includes both the 100-ounce and 33.2-ounce contracts.
MCX
11,032
6,562
6,042
7,033
Source: Thomson Reuters
DGCX
133
257
295
258
Source: Respective exchanges
on 13th May. As will be discussed in detail in the relevant parts of this report, such heightened turnover was driven by robust physical demand in response to a weakening gold price. Meanwhile, speculative interest was also elevated, as turnover of SGE’s AU(T+D) contracts posted a double-digit increase in the first half. China’s Shanghai Futures Exchange registered a 14% year-on-year growth in turnover. Furthermore, following a rapid expansion of trading volumes in recent years, both exchanges in Shanghai launched additional evening trading sessions to boost market liquidity more recently. India’s Multi-Commodity Exchange (MCX) remained an important commodity exchange for gold futures trading on a global basis. Total volumes in the first half of 2013 saw a 7% year-on-year increase, which was largely a reflection of frequent policy changes resulting in a buildup of speculative and hedge positions by investors.
OTC MARKET purchases on a net basis over the January-June period.
Metal accounts held by western high-net-worth investors also posted a net rise, largely reflecting gold’s traditional role as a means of wealth preservation. This was also partly related to the ongoing shift out of gold ETFs, as metal accounts offered lower fees, while transactions in the OTC market were less transparent than in ETFs. Interest in gold deposit accounts (a product that targets retail investors and is not included in our bar and coin estimates) was also apparent in Turkey and China where the price fall sparked a robust response. The process was also facilitated with ongoing promotion of gold accounts by local banks, which helped to raise gold’s appeal.
PHYSICAL BAR INVESTMENT —— Price declines push up bar investment by 52%.
NET “INVESTOR” POSITIONS IN COMEX FUTURES 400 Net positions (contracts, thousands)
Over the same period, as a shortage of bullion rapidly developed in many regional markets and local premia jumped, transactions that were related to physical gold transfer jumped in the London market. Feedback from our contacts, gold trade data and clearing statistics
World demand for physical bars increased a staggering 52% during the first half, mainly driven by strong bargain hunting across all regions on the major price correction.
2000
Non-reportable Non-commercial
Settlement price
1800
300
1600 200 1400 100
0 Jan-10 Jul Jan-11 Jul Source: CFTC, Thomson Reuters
US$/oz
As mentioned above, an analysis of components of our implied net figure indicates that sizeable net investment occurred in the OTC market in the first half of 2013. This might seem surprising given that trading in the OTC market is dominated by institutional investors, who were the key elements behind the steep price retreat. Nevertheless, this should be viewed within divergent trends in OTC products over the period. Our information suggests that heavy liquidation in conjunction with a sharp rise in short-side interest were observed from shorter term investors, particularly after the price fell below the physiologically important $1,500 mark.
1200
1000 Jan-12
Jul
Jan-13
Jul
15
INVESTMENT
——The OTC market witnessed robust volumes of
published by the LBMA all indicate that a substantial amount of large gold bars (from redemptions of ETFs and sales from unallocated accounts) were shipped to Switzerland from mid-April to be converted to small bars for markets in Asia and the Middle East. Meanwhile, direct shipments, albeit more restrained, from the United Kingdom to the Far East also jumped, as refineries reached full capacity.
GOLD SURVEY 2013 - UPDATE 1
At 725 tonnes, physical bar investment turned out to be higher than world investment, due to the significant amount of net-implied disinvestment during the first half. The US small bar market has lagged that of the official coin sector this year with market participants reporting comparatively modest growth. One notable trend has been towards lower value bars, especially 10 gram bars, which is reflective of the global trend given the rise of Asian investors. Going forward market participants expect strong demand on price dips.
Nevertheless, in spite of the generally more upbeat sentiment, Europe once again illustrated the variety of attitudes embedded in the region, with country level willingness towards physical bar investment remaining a mixed bag. Germany, the largest market, fully grabbed the opportunity and went bargain hunting en masse, continuing in their solid expansion mode, whereas French and UK investors showed far less conviction. In fact, French investors were not amused by the strong price dip and cut their total physical investment demand in half in the first half. Whereas British investors, while still considering gold bars as a solid investment, were more concerned about future price levels. Indian bar investment during the first half of 2013 is estimated to have more than doubled year-on-year to reach 155 tonnes. A declining price trend at the RETAIL INVESTMENT 600 500
Vietnam
North America
Other
India
Europe
China
400 Tonnes
INVESTMENT
European net bar investment is estimated to have fallen slightly in the first half, driven mainly by a disappointing performance in the first quarter. However, following the significant price dip in the second quarter, demand for gold bars in the European region significantly increased. Investors were motivated to add gold bars to their portfolio after the price decline released some pent-up demand, and we view this buying as reflective of longerterm holdings rather than speculative purchasing.
300 200 100 0
-100 Q1-08 Q1-09 Q1-10 Source: Thomson Reuters GFMS
16
Q1-11
Q1-12
Q1-13
QUARTERLY NET RETAIL INVESTMENT DEMAND (tonnes)
12.Q3
12.Q4
13.Q1
North America
10.9
17.4
21.0
13.Q2 25.3
Europe
67.7
66.9
50.2
85.8
Source: Thomson Reuters GFMS Definition: Retail investment includes physical bullion as defined by the EU, individuals’ paper transactions with a direct physical counterpart plus OTC activity and changes in metal account holdings where measurable and retail-targeted. It excludes all forms of jewellery and fund purchases. Country divisions are basis bullion location and not nationality of ownership.
beginning of the year saw robust buying as consumers replenished previously liquidated assets. The price drop in April that saw gold in rupee terms slump 23% from the September 2012 peak ignited a frenzy of fresh demand for investment products. The demand peak coincided with a seasonally strong period to generate a shortage of available metal across the supply chain, pushing premia briefly above $70/oz. Supporting volumes were the advance purchase by households which are intended to be converted into jewellery at a later stage. Chinese investment demand posted a staggering 67% increase in the first half of the year. The traditionally strong sales in the first quarter, marked by consumer activity during the festivities over the Chinese New Year, were outclassed by the sales in the second quarter that brought overall sales for the first half of the year to 230 tonnes. The astounding 148% jump in the second quarter alone has to be viewed as a unique occurrence, as this period has been traditionally known for the post festivities’ commercial lull. This performance was due to the improvement in consumers’ sentiment and augmented by, arguably, limited investment channels of underperforming stock and real estate markets as well as growing real inflation. Additionally, the sharp price corrections at the end of April and in June presented consumers with long-awaited buying opportunities. The price drop in the second quarter saw investment demand soar across the rest of South East Asia, as consumers rushed to purchase gold at the perceived bottom of the market. Tight restrictions on supply due to government legalisation restricted Vietnam investment demand growth to “just” 11% after offtake declined in the first quarter. Elsewhere, demand was less restrained, with Thailand’s offtake more than doubling in the second quarter and rising by 55% year-on-year in the first half as domestic prices fell below baht 19,000 per baht bar for the first time since early 2011. It was a similar outcome for Indonesia where demand for small investment bars jumped 27% to a thirty-year high, led chiefly by the low price environment.
GOLD SURVEY 2013 - UPDATE 1
(tonnes) Western*
2012
Change 2013F y-o-y
13.H1 13.H2F
197
208
5%
100
107
73
109
49%
56
52
East Asia
431
602
40%
381
221
Indian S-C
221
217
-1%
172
46
Other
23
31
35%
15
15
Total
945
1,166
23%
725
441
Middle East
*Europe and North America; Source: Thomson Reuters GFMS
Investment demand in Japan saw contrasting outcomes in the first and second quarter of this year. The first quarter was marked by historically record high prices which crossed the highs of ¥5,000/g mark and prompted solid dishoarding of 2.8 tonnes. Subsequently, two sharp corrections in the second quarter brought the price down to lows of ¥3,800/g, attracting price sensitive investors who, particularly in April, crowded retail points of sales to take advantage of the price level last seen in the middle of 2011. Second quarter investment demand turned positive, doubling over the corresponding quarter of last year and lifting bar hoarding to 4.4 tonnes. Overall, net demand in the first half reached 1.6 tonnes, the first positive result in eight years.
OFFICIAL COIN SALES & FABRICATION ——Coin minting posted a massive increase in the first half to reach the highest level in our data series.
More than 45% of the absolute gains were accounted for by Turkey where coin minting more than doubled (the county maintained its position as the largest gold bullion coin fabricator). In fact, at 62 tonnes, volumes in the first half of 2013 had already exceeded the record annual total of 59 tonnes in 2011. Unsurprisingly, this outcome was primarily driven by a weakening gold price which lost 24% over the six-month period to less than TL75/g by late June, a level last visited in May 2011. Such a dramatic price decline stimulated a wave of bargain hunting which in turned encouraged stock replenishments by dealers. Weakening prices also gave a strong boost for the gifting segment, particularly for consumers that had been “priced out” in recent years. Furthermore, sales of gold coins seem to have benefitted from the ongoing promotion of gold deposit accounts
The appetite for gold from western retail investors also picked up strongly. Our propriety quarterly bullion coin survey shows that demand for newly minted coins surged by 108% and 61% in North America and Europe respectively in the first half, with the April-June period contributing a larger share of year-on-year gains. In addition, unlike western institutional investors who were the dominant seller in gold market, selling back at the retail level was fairly limited. Apart from a surge in bargain hunting in response to the price plunge in midApril, concerns about the fiscal and economic situations on both sides of the Atlantic was also important to such a hefty increase. That said, demand remained some way below the peak seen in late 2008 and early 2009, reflecting a degree of satiation among certain investors, particularly those that had accumulated sufficient stocks in recent years. Elsewhere, healthy gains were also reported by a number of countries, especially in China where the coin sector also enjoyed a buying frenzy in the first half of 2013.
MEDALS & IMITATION COINS ——Demand jumps by 40% in the first half. Demand for medals & imitation coins rose by 40% to 69 tonnes in the first half, almost entirely driven by hefty gains in India where weakening gold prices encouraged investor interest. While being a relatively small segment of the local gold market, coin sales also suffered from a series of new regulations imposed by Indian governments to rein in gold imports. In particular, ban on gold imports in any form on a consignment basis essentially halted imports of coins minted outside India. By contrast, coins minted by domestic refiners noticed strong offtake in purity of 99.5% and above in the first half. TURKISH AND US GOLD BULLION COIN FABRICATION 35 Turkey
United States
30 25 20 15 10 5 0
Q1-10 Q1-11 Q1-12 Source: Turkish State Mint; United States Mint
Q1-13
17
INVESTMENT
Global gold coin demand is estimated to have surged by 71% year-on-year to 179 tonnes in the first half of 2013, the highest half-yearly figure in our data series dating back 1968 and almost matching the full year total of 198 tonnes in 2012.
by local commercial banks, with this endorsement also lifting gold’s profile as an investment asset.
Tonnes
WORLD PHYSICAL BAR INVESTMENT
GOLD SURVEY 2013 - UPDATE 1
TOP 20 GOLD MINING COUNTRIES
•
Global gold mine production rose in the first half of 2013, by 3%, or 41 tonnes.
•
Producer de-hedging of 26 tonnes was recorded in the first six months, leaving the outstanding delta-adjusted hedge book at just 97 tonnes.
•
Average total cash costs rose by 7%, to $782/oz, a new record high on a half year basis. All-in costs continued to escalate and are estimated to have risen to $1,250/oz.
MINE PRODUCTION INTRODUCTION
MINE SUPPLY
During the first half of 2013 the volume of global mine supply expanded again, rising by 3%. In an industry which in recent months has been seen as under pressure from falling prices, this may at first seem counterintuitive. However, that supply continued to rise is not a direct reflection of the robustness of gold mine production versus price, but rather should be viewed as the product of a number of ramp-ups and project completions that have been in development for the past few years. Recently mooted expansion projects are, however, under review by miners who wish to cut capital expenditure in a tighter cash-flow operating environment. Amongst those at the higher end of the cost curve, there has already been some rationalisation, with a number of smaller assets recently placed on care and maintenance. While there have also been some chunky asset value write-downs there has not, however, been the start of a mine supply bloodbath that some industry commentators have proposed. It is worth remembering that gold miners are not powerless here. While average production costs continued to rise for the half year, the start of lower cost projects and cost containment efforts by miners have had some effect, visible in the contraction in reported total cash costs in the second quarter. During the second quarter prices reached a low of $1,181/oz, below the all-in cost of production, and this prompted some producers to defer capital expenditure until prices recovered, thereby maintaining output. And with mine supply still maintaining some upward momentum, the spectre of falling mine supply has, up to now, provided support only to gold investor sentiment rather than any price-positive feedback into the fundamental supply-demand balance.
Production (t) 2012 12.H1
2011 371.0
413.1
182.1
197.8
Australia
258.6
251.4
124.8
126.9
2%
United States
233.0
231.3
112.3
110.1
-2%
Russia
215.6
230.1
89.5
96.3
8%
South Africa
202.0
177.3
93.4
87.4
-6%
9%
-9%
Peru
187.6
180.4
92.8
84.4
Canada
107.8
108.0
51.1
60.9
19%
Ghana
91.0
95.8
54.3
51.9
-4%
Mexico
88.6
102.8
52.3
49.6
-5%
Indonesia
120.1
89.0
45.8
42.6
-7%
Uzbekistan
71.4
73.3
35.9
39.2
9%
Brazil
67.3
67.3
32.3
36.4
13%
Papua New Guinea 63.5
57.2
28.8
31.0
8%
Chile
44.5
48.6
23.0
25.4
10%
Argentina
59.1
54.6
26.7
24.5
-8%
Mali
43.5
50.3
24.2
23.9
-1%
Tanzania
49.6
49.1
24.6
21.2
-14%
Kazakhstan
36.7
40.0
18.6
21.1
14%
Philippines
37.1
41.1
20.4
20.1
-1%
Colombia Rest of World World
37.5
39.1
19.6
20.1
2%
453.8
464.3
222.0
244.7
10%
2,839.1 2,864.0 1,374.4 1,415.6
3%
Source: Thomson Reuters GFMS
AFRICA Total African production fell by just under ten tonnes, or 3% year-on-year, to 290 tonnes. More than half of the fall came from the continent’s largest producer, South Africa, where output fell by 6%, to total just over 87 tonnes. Underlying this, several large mines faced operational issues including underground fires at Beatrix and Phakisa, illegal strikes at Elandsrand (Kusasalethu) and Tshepong, and an Eskom substation outage at Mponeng. Collectively, these issues contributed to a six tonne drop year-on-year.
GLOBAL MINE PRODUCTION 2000
1500
Australia
Russia
Other
Other Africa
Latin America
Other Asia
South Africa
North America
China
1000
500
0
H1 09 H1 10 Source: Thomson Reuters GFMS
18
Change 13.H1 y-o-y
China
Tonnes
4. MINE SUPPLY
H1 11
H1 12
H1 13
GOLD SURVEY 2013 - UPDATE 1
MINE PRODUCTION WINNERS AND LOSERS, FIRST HALF 2013 VERSUS 2012
-6 t
-4 t
-2 t
-0.5 t
+0.5 t
+2 t
+4 t
+6t
Source: Thomson Reuters GFMS
Across the rest of the continent, drops in output were also noted for several of the major African producers. Tanzanian production fell by 14%, to 21 tonnes, on the back of major output decreases at Geita, Bulyanhulu and Golden Pride, which collectively produced five tonnes less than in the first half of 2012. This was partially offset by a 67% year-on-year increase at North Mara. Meanwhile in Eritrea, a three tonne fall was seen at Bisha, where mining from a satellite deposit led to reduced gold grades and recovery rates. Production in Ghana fell by over two tonnes due to an illegal strike and the curtailment of heap-leach operations at Tarkwa, while in Mali output was largely flat year-on-year, at 24 tonnes. Conversely, output in Guinea and Zimbabwe climbed marginally to nine and ten tonnes respectively.
NORTH AMERICA Mine supply from the United States dropped by 2% yearon-year to 110 tonnes. This decline was largely a result of lower processed ore grades at the country’s three largest producers (Newmont’s Nevada Complex, Barrick’s Cortez and Goldstrike), where production fell by an aggregate five tonnes. Output from Round Mountain and Bald Mountain dropped by a combined two and a half tonnes due to a scheduled drop in ore grade at Round Mountain, and lower ore tonnage placed on the leach pads with Bald Mountain having entered a development phase in 2013. A one tonne drop at Bingham Canyon was due to the processing of lower ore grades and a two-week suspension of mining in April, caused by fault slippage and resultant slumping of its north-eastern pit wall. Offsetting a large part of these losses, production gains were registered at Fort Knox, Jerritt Canyon and Marigold, where the three mines saw output rise by a combined four tonnes. In the case of Fort Knox, a first half total of more than six tonnes represented a 47% increase year-on-year, largely due to much higher processed ore grades, which rose by more than 70% compared with the same period in 2012.
19
MINE SUPPLY
The strongest growth rates in the formal mining sector came from Burkina Faso, Zambia, Senegal, Mauritania and Egypt, which collectively produced an additional seven tonnes over the first half of 2012. These gains were largely due to output from the newly commissioned Bissa-Zandkom mine and higher mill throughput and processed grades at Sabodala (Senegal), Tasiast (Mauritania) and Sukari (Egypt). The Kansanshi mine (Zambia) increased production by 44% year-on-year, in part due to gold circuit enhancements that lifted recoveries.
We hear that the second quarter fall in the gold price has done little to stem informal activity in many areas, not least in Sudan and the Democratic Republic of Congo.
GOLD SURVEY 2013 - UPDATE 1
Canadian output rose sharply, by 19% year-on-year, with first half mine production totalling 61 tonnes. The rapid increase was due to the ramping up of a number of new mining operations, namely Detour Lake, Young Davidson, Canadian Malartic and New Afton, which collectively added six tonnes of production between them. In the first half of 2013, Detour Lake and the Westwood mine of the Doyon Division remained within the early stages of ramping up to commercial production and are expected to produce around eight and four tonnes respectively for the full year. The country’s largest operation, Red Lake, increased output by 23%, to total eight tonnes. In other areas of the country, very few operations recorded any sizeable drops in output.
and Soledad & Dipolos the key contributors to this outcome, as well as the suspension of operations at El Coronel due to a blockade.
OCEANIA Australian gold production rose by 2% year-on-year to total 127 tonnes. A large portion of this output growth came from new mining operations (Garden Well, Nullagine and Murchinson Goldfield) which collectively added around five tonnes. A few established operations, such as Cowal, Cadia Valley and Mount Monger, increased output by a combined 39%, to 16 tonnes, due to higher mill throughput (Mount Monger) and processed ore grades.
LATIN AMERICA
MINE SUPPLY
Mine supply from Latin America rose by 2%, with the main contribution stemming from the Dominican Republic, where output grew by almost 12 tonnes. This was attributable to the ramp-up of Pueblo Viejo, and a small contribution from Las Lagunas, both having been commissioned last year. A 13% increase in Brazil came from the ramp-up of Salobo, and fresh supply from Paua-Pique, together adding just under two tonnes. Output from Sao Francisco also showed a significant increase from depressed levels last year associated with the failure of the primary crusher, while higher output at Crixás and Paracatu came from improved grades and recoveries. These gains offset losses at Chapada, Jacobina and Brasil Mineração; in each case, lower processed grades contributed to the losses. Chilean gold output increased by 10% over the period, led by improved grades at El Peñón and La Coipa, together with higher throughput at Esperanza. Collectively these added three tonnes, countering losses at Maricunga, Escondida and El Toqui. Elsewhere in Latin America, results were not so positive. In Peru, the region’s major producer, mine supply contracted by 9%, driven by planned decreases at Peru’s two largest gold producers, Yanacocha and Lagunas Norte. Mining of several areas at Yanacocha completed during 2012, and there was a scheduled decrease in the grade of ore processed at Lagunas Norte. These losses were partially offset by increased production on higher grades at La Zanja, and fresh output from Breapampa. Argentinean gold output fell by 8%, on lower grades at a number of the country’s significant mines, such as Veladero, where grade processed saw a scheduled decrease. Elsewhere, falling grades at Alumbrera and Gualcamayo, coupled with lower throughput at the latter, led to a loss of just over one tonne. In Mexico output fell by 5% year-on-year, with lower recoveries at Peñasquito
20
The country’s three largest gold producing properties (Boddington, Telfer and the Kalgoorlie Superpit) saw mixed year-on-year results with a collective drop of over one tonne in production. Higher grades and recoveries at the Telfer open pit and underground operations resulted in a 7% year-on-year rise in output, while at Boddington higher processed grades also helped lift output, albeit marginally, to eleven tonnes. However, more than offsetting these gains, Kalgoorlie Superpit saw a two tonne drop as throughput, processed ore grades and recoveries all fell. Lower processed grades at both Jundee and St Ives, and a two-week planned maintenance shutdown of the St Ives Leap Frog mill, resulted in a combined 13%, or two tonne, drop in output at these mines. Other notable losses occurred at Laverton, Coolgardie and the suspended operations at Norseman, which collectively produced under two tonnes, or 52% less than the corresponding period in 2012. Furthermore, a decline in the gold price in the second quarter helped accelerate a decision to place these operations on care and maintenance. New Zealand saw a 36% year-on-year rise in gold production, totalling just less than six tonnes. While a production increase of 19% at Macraes was partially offset by 17% lower output at Reefton, higher processed grades at Waihi resulted in a one tonne lift in gold output compared to the first half of 2012.
ASIA Gold production in Asia increased year-on-year by 6%, or nearly 19 tonnes, with mine supply from China, the world’s top gold producer, approaching 200 tonnes, or 14% of global output in the first half of 2013. Shandong, Henan and Inner Mongolia were the largest producing provinces during the period. In line with a similar trend in
GOLD SURVEY 2013 - UPDATE 1
CORPORATE ACTIVITY H1 2013 TOP 10 GOLD PRODUCERS
In spite of extreme gold price volatility, the first half of 2013 saw comparatively solid levels of corporate activity in terms of dollar value. According to data from ThomsonONE, gold mining transactions announced in this period totaled $9 billion. This was broadly flat year-on-year although it should be noted that 2012 was a comparatively quiet year for transactions. The nature of some of the deals appears to have changed, with a relative absence of ‘blockbuster’ consolidation plays, replaced by activity by small and mid-tier companies, where acquisition opportunities have become increasingly cheap as mining capitalisations have been deeply
(tonnes) 12.H1 13.H1
Change y-o-y
Barrick Gold
112.7
112.2
0%
Newmont Mining
77.4
72.6
-6%
AngloGold Ashanti
63.9
57.0
-11%
Goldcorp
34.3 39.2 14%
Kinross Gold 1
36.2 38.3 6%
Newcrest Mining
34.8
36.0
3%
Navoi MMC
32.9 34.0 3%
Gold Fields
49.9
26.7
Polyus Gold International
22.4
22.3
0%
n/a
20.4
n/a
1
Sibanye Gold
eroded. Also of note have been intra-company acquisitions
1
and general portfolio re-organisations, such as a number of
Source: Company Reports; Thomson Reuters GFMS
-46%
Estimate
public and private transactions by Shandong Gold to raise approximately $2.1 billion, which was used at least in part to fund the purchase of production assets from its parent and
In a recent interesting development between two majors,
other parties. Notable was the announcement in February
Barrick announced that, pending regulatory approval, it would
that over one-third of Polyus Gold International’s equity, held
sell its Yilgarn South assets in Western Australia (comprising
by Onexim Group, was sold to another private shareholder
Granny Smith, Lawlers and Darlot) to Gold Fields, in a deal
group for proceeds of $3.6 billion.
worth $300 million. Strategically, this seems a logical transaction from a number of angles: To Barrick, Yilgarn
Larger mid-tier deals, coming in at between $400-700 million,
South is a comparatively small, non-core unit, consuming
have included Hecla Mining’s acquisition of Aurizon Mines, and
management resources and sitting at the higher end of
the proposed purchase by private Chinese company Golden
Barrick’s cost curve. To the recently downsized Gold Fields
Star Group Holdings Ltd of Goldbell Holdings, to gain control
(following the spin-out of Sibanye Gold, announced in 2012
of a number of domestic assets. Sumeru Gold’s purchase of
and completed earlier this year) the group has reduced
Turquoise Hill Resources’ 50% stake in the Kyzyl gold project,
its South African mining business and can look to other
first announced in February at a cost of $300 million, was later
geographies into which it can expand; Yilgarn South’s current
reduced to $235 million in August, owing to falling gold prices.
costs would be comparatively low for Gold Fields’ portfolio.
recent years, output from integrated mining and refining operations fell by 6 tonnes, or 7%, while production from the smelting industry rose by 22 tonnes, or 23%.
Flat or lower production was reported by a number of Chinese producers during the first half, with lower grade a common theme. At the Chang Shan Hao mine in Inner Mongolia output was down during the first half, on lower grades, longer leach times and an interruption to
Elsewhere in Asia, the largest change was a three tonne fall in output from Indonesia. Although the ramp-up at Martabe added more than four tonnes of new production in the first half of 2013, a fall of over three tonnes each at both of Indonesia’s largest gold properties, Grasberg and Gosowong, led to an overall decrease in the country’s output. At Grasberg, the reduction reflected a stoppage
21
MINE SUPPLY
The results from Zijin Mining mirror the country-wide trend towards higher smelter production. While total output increased by almost 30%, mined gold production rose by only 2.6%, with supply from Zijin’s flagship property, Zijinshan, affected by a 20% decrease in grade, as well as system maintenance and work on the tailings facilities. The majority of growth came from the company’s refining and smelting business, which also toll treats on behalf of other producers, and which saw a twelve tonne rise in output.
production for maintenance. Eldorado Gold’s Chinese operations all experienced falls in output during the first half of the year, on lower grades. Meanwhile, Real Gold, with three operations in Inner Mongolia, continued to experience difficulties at the Shirengou-Nantaizi Plant, where a power supply outage halted production between October 2012 and June 2013. A 39% decrease in throughput, together with a 57% fall in grade, led to payable production falling by 75%. Payable production was also down at Luotuochang, as both grade and recoveries decreased. By way of contrast, Lingbao Gold produced almost 5% more gold in the first six months.
GOLD SURVEY 2013 - UPDATE 1
of operations following a fatal accident in May, as well as the processing of lower grades, while at Gosowong grades were significantly down during the first quarter due to limited access to high-grade stopes. Output in Papua New Guinea rose by 8% during the period, with Hidden Valley, Lihir and Porgera collectively adding over three tonnes of production. Higher throughput was achieved in each case, with a plant expansion completed at Lihir and a first half relatively free of operational disruptions at Porgera. At Hidden Valley, the commissioning of a crusher at the front of the overland conveyor was undertaken during the second quarter, enabling the processing of greater quantities of higher-grade ore from the pit. Turkish gold production increased by almost 20% during the first half, as Efemçukuru ramped up production and Çöpler and Kişladağ increased output, due to higher grades and throughput at the former, and to the stacking and leaching sequence during the period at Kişladağ. In Mongolia, an increase of over one tonne, or 45%, largely reflected the start of production from Oyu Tolgoi in the second quarter, with a smaller contribution from Boroo, where higher milled grades and the resumption of heapleach operations led to rise of half a tonne.
Production in the CIS increased by 10% in the first half, lifted by gains at all of the main gold producing countries across the region, led by Russia, which increased by almost seven tonnes. Especially strong outcomes were noted for two of the country’s Far East territories, Amur and Khabarovsk. The former benefitted from Albyn having reached steady-state operations and from plant improvements at Pioneer. Similarly, upgrades to the pressure oxidation plant were behind a notable rise in doré output from Albazino-Amursk. In Uzbekistan output is estimated to have risen by 9%, with higher production originating from a ramp-up at Zarmitan while the country’s major mine, Muruntau, was assumed to be broadly stable year-on-year.
——Global average total cash costs rose by $52/oz year-on-year in the first six months. All-in costs are estimated to have risen to $1,250/oz.
Total cash costs rose to $782/oz in the first half of 2013. While the six-month figures show a 7% increase from the comparable period in 2012, this hides the fact that despite a spike in total cash costs in the first quarter, they fell in the second such that production costs have been up only marginally since the second half of 2012. However, when taking into account the continued decline in the period average price, the data clearly shows that simple average cash margins continued to contract. By the second quarter, simple margins had fallen to $648/oz, having peaked at $1,032/oz in the third quarter of 2011. Adding in other components of the cost of production, both Total Production Costs and All-in costs rose. The former, which includes depreciation and amortisation, rose to $995/oz. All-in costs, a proprietary cost metric designed to reflect the full marginal cost of mine production, and which includes ongoing (‘stay in business’) capital costs, indirect costs and corporate overheads, is estimated to have risen to $1,250/oz in the first half of 2013. This has been particularly affected by a considerable amount of company write-downs following the decline in spot gold price during the period. Over the last decade rising gold prices enabled producers to adjust mine plans to incorporate lower grade material, thereby optimising assets’ lives, but this practice also served to push costs higher when expressed on a unit dollar per ounce basis. By way of example, we estimate that between 2005 and end-2012, the average grade of ore processed globally declined by 28%.
QUARTERLY TOTAL CASH COSTS BY REGION 1800 1600
In Europe, production was steady year-on-year, as a maintenance shutdown at Kittila in Finland led to a one tonne loss. This was, however, mitigated by slight gains elsewhere in-country, and improved output levels in Spain, Greece and Bulgaria.
1400 1200 US$/oz
MINE SUPPLY
COMMONWEALTH OF INDEPENDENT STATES (CIS) AND EUROPE
PRODUCTION COSTS
Gold Price World
Simple Margin (World)
Australia South Africa North America Latin America
1000 800 600 400 200
09.Q1 10.Q1 Source: Thomson Reuters GFMS
22
11.Q1
12.Q1
13.Q1
GOLD SURVEY 2013 - UPDATE 1
Additionally, some governments have continued to seek to benefit more from their natural resources industries, through raising royalty rates. For example, the royalty rate in Senegal was increased to 5% from 3%, effective 1st January 2013. In Tanzania, the effect of increased royalties at African Barrick’s operations, brought into effect in May 2012, was realised for the full period. However, while percentage rates may be higher, this effect will have been partially mitigated in absolute dollar terms due to the lower gold price. In addition, by-product credit revenues fell over the period, due to weaker copper and silver prices, which fell by 7% and 14% respectively. This was most strongly felt in Latin America, where a greater proportion of gold mines derive revenue from other associated metals. In part this factor was behind the region recording the most significant percentage cost inflation among the costed population, up by 12% year-on-year. Nevertheless, Latin America remained one of the lowest cost regions, with total cash costs averaging $614/oz. In North America, average total cash costs increased by just 2% to $668/oz. In the United States costs rose by 6%, although offsetting this was Canada where costs fell by 5%. Canada benefitted from the steady state production at the recently commissioned Canadian Malartic, where costs declined by 18% year-on-year, and at Canada’s largest operation, Red Lake, where they fell by 9% due to a solid improvement in processed grade. In the United States, costs rose by 17% at Barrick’s Goldstrike mine, while at Cortez mine production costs declined by a substantial 40% due an increase in the rate of capitalised stripping taking place. When expressed in dollars South Africa had an apparently good year, with costs growing by ‘only’ 6% year-on-year thanks to a sharply weaker rand. This
REPORTED TOTAL CASH AND PRODUCTION COSTS (US$/oz)
13.Q1
13.Q2
North America
629
681
658
635
689
646
Latin America
521
563
571
583
593
637
Australia
851
868
891
907
957
868
971 1,069
South Africa
12.Q1 12.Q2
1,253
1,146
988
Other
744
768
791
786
828
825
World
716
744
764
769
796
768
1,691 1,609 1,652
1,722
1,633
1,416
953
836
648
Gold Price
1,039
12.Q3 12.Q4
Cash Margin
975
866
888
Production Cost
914
954
982 1,010 1,022 1,004
Note: Weighted averages based on the Gold Institute reporting standard. Does not include mines for which gold is not the primary source of revenue. Source: Thomson Reuters GFMS
belies a more stark 23% rise in rand terms, owing to both inflationary factors and lower metal production driving unit costs higher. At the time of writing, negotiations between industry and labour are strained, with a wide gulf between what producers are offering (an increase of 6-6.5% in basic salary) and what unions are demanding (up to a reported 150% increase): strikes were called at the beginning of September. Of the significant producing countries where we record quarterly costs, the general trend has been that costs have been contained or fallen in those jurisdictions where output has risen. This trend stems both from a unit cost basis at existing mines, and from the introduction of output from new, low cost projects that bring the global average down. Two notable exceptions to this trend, however, were Papua New Guinea, where costs rose by 11% over the six month period, and Chile, with a 39% increase in total cash costs. Both came with a concurrent increase in the volume of costed production.
WORLD TOTAL CASH COST CURVES 1800
1800 H1 2012 Average Gold Price ($1,651.34/oz)
1600
H1 2013 Average Gold Price ($1,523.29/oz)
1400
1200
1200
1000
1000
800
800
600
600
H1 2012 Total Cash Cost H1 2013 Total Cash Cost
400
400
200
200
0
0
-200 0 10 Source: Thomson Reuters GFMS
MINE SUPPLY
1400
US$/oz
US$/oz
1600
-200 20
30
40 50 60 Cumulative Production %
70
80
90
100
23
GOLD SURVEY 2013 - UPDATE 1
COMPOSITION OF THE DELTA-ADJUSTED HEDGE BOOK
WEIGHTED AVERAGE STRIKE PRICES OF CONTRACTS
(tonnes, end period) Change 12.H1 12.H2 13.H1 6 months
(weighted by number of contracts, end-June 2013) Contract Type USD
Forwards & Loans
Bought Puts
$1,102
Sold Calls
$1,823
$1,671
Forward Sales
$1,336
$1,583
Options Total
120
101
75
-26%
33 22 23 1% 153
123
97
-21%
AUD $1,378
Source: Thomson Reuters GFMS
Source: Thomson Reuters GFMS
PRODUCER HEDGING
component of the book (the largest portion) was $144 in excess of the spot price at end-June.
——The global producer hedge book shrank by 26 tonnes in the first six months of 2013.
During the first half of 2013, the amount of gold hedged against producers’ hedge contracts fell by 26 tonnes, a reduction of 21% from end-December 2012. The bulk of the cuts were to producers’ forward sale positions, whereby companies took advantage of a declining price trend to opportunistically close out project hedges. With the price falling rapidly in April, there was speculation in the media that miners would begin to return to defensive hedging against any further price declines. Evidence however points to the contrary, a continued trend towards unhedged status. Many of the cuts to forward sale positions in the second quarter came from Australian focused producers that closed out positions as they moved into-the-money due to the decline in the spot gold price. The proceeds were typically then used to repay down project debt. The most significant of these was Crocodile Gold, which cut nine tonnes of outstanding forward sales, leaving the company unhedged.
In contrast to producers’ forward sales, the amount of gold hedged against the options portion of the book increased slightly, due to delta-hedging of bought put positions by counterparty banks. While the price decline led to a reduction in the outstanding volume of deltahedging against the sold call portion of the book, it also meant that many bought put options, which previously were heavily out-of-the-money, were now much closer to being exercised, with a correspondent increase in the level of delta-hedging against these contracts.
At end-June, the gold price of $1,192 represented a 29%, or $483, decline from the end-December Comex settlement price. This decline in price meant that for the first time in our quarterly series of records, the marked-to-market value of the aggregate hedge book was an asset rather than a liability; the weighted average strike price of the US dollar denominated forward sales
Of course, with the price estimated to rise by at least $200 between end-June and end-September, we estimate that in the third quarter some of this additional hedging will have been undone, meaning the hedge book may have shrunk further. In addition to this, the delivery profile indicates that there are 28 tonnes of contracts due for delivery in the second half of the year. But some hedging activity has been observed, with the most significant player in this regard being Petropavlovsk. During the first half of 2013 the company added a net eleven tonnes of forward sales, and subsequently has added another five, further to guard against volatility in the gold price. But with other announced activity scarce, it does not yet look as if any meaningful move towards widespread hedging is underway in the industry. We estimate that for the full-year the market will see dehedging of approximately 40 tonnes.
DELIVERY PROFILE AT END-JUNE 2013
EVOLUTION OF THE GLOBAL HEDGE BOOK
Tonnes
35
700
Options
30
600
Forwards & Gold Loans
25
500
Forwards & Gold Loans
20
400
15
300
10
200
5
100
0
2013 2014 Source: Thomson Reuters GFMS
24
800
Options
Tonnes
MINE SUPPLY
40
2015
2016
2017
0 08.Q1 09.Q1 10.Q1 Source: Thomson Reuters GFMS
11.Q1
12.Q1
13.Q1
GOLD SURVEY 2013 - UPDATE 1
5. SUPPLY FROM ABOVE-GROUND STOCKS •
•
Notably weaker prices triggered a 14.3% drop in scrap supply, pushing its share of total supply down to 26%.
OFFICIAL SECTOR ——Net official sector purchases are estimated to have fallen by 32% in the first half of 2013 to 191 tonnes.
——Increasing tightness in the physical market drove up leasing rates, although this was not sufficient to prompt a major recovery in central bank lending.
substantial. This clearly illustrated how developments in the official sector could spook an already nervous market. Going forward, we expect the official sector to remain at its current pace of gold acquisitions in the second half of the year, as the argument for portfolio diversification has remained intact. On the other hand, despite the suggestion of sales from Cyprus, this is unlikely to lead to heavy disposals from other indebted European countries in the short term, due to the relatively small size of their gold holdings (compared with their current public debt) and the scope for such operations to panic the bond and foreign exchange markets.
SALES Our estimates for official sector sales/purchases are based on a combination of publicly available data found in IMF statistics, central bank websites and the press, as well as information collected through our field research. Due to the lag that often exists between activity taking place and being identified, it is possible that our estimates will be revised in the future. Our estimate shows that net official sector purchases dropped by 32% to 191 tonnes in the first half of 2013, although the absolute level remained still high by historical standards. The majority of official sector purchases over the period once again were accounted for by emerging market countries, reflecting the ongoing desire to diversify their reserves portfolios away from the major international currencies. In our view, the slowdown in their acquisitions was in part related to gold’s disappointing price performance and rising volatility, which could encourage certain countries to postpone their purchases. Also of importance though was the renewed strength of the dollar and a recovery in US Treasury yields.
Gross sales from the official sector remained trivial in the first half of 2013, amounting to just above five tonnes. Once again, Germany was the only country within the CBGA group to cut gold reserves, releasing roughly one tonne for its official coin programme. Outside the CBGA, interest in offloading bullion remained lacklustre, particularly in light of the hefty drop in gold prices over the period, and the majority of gross sales seem to have been related to coin minting.
PURCHASES Gross purchases are estimated to have totalled 196 tonnes in the first six months of 2013, down by 31% year-on-year. Before looking at a country-by-country breakdown, it is important to emphasise that our gross figure does not include the net increase in Turkish official reserves, as this is reflected in changes in local commercial banks’ gold deposits with the central bank.
Ch3 RetailSECTOR investmentPURCHASES/SALES NET OFFICIAL 200 150
Rest of World** CBGA* Net Purchases
100 Tonnes
At the same time, the net purchase figure was still high, underpinned by the continued absence of major disposals from signatories to the Central Bank Gold Agreement (CBGA). Nevertheless, the trigger for the price crash in mid-April was the news that the European Commission had suggested that Cyprus sell gold reserves to raise 400 million euros. While the country’s gold holdings (14 tonnes) are small, this raised growing doubts about the independence of central banks and, more importantly, fears about possible sales from other struggling European countries where gold reserves are more
50 0 -50
Net Sales
-100 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Source: Thomson Reuters GFMS, IMF *signatories to the Central Bank Gold Agreements and IMF (on-market) ** all other countries
25
SUPPLY FROM ABOVE GROUND STOCKS
Central banks in aggregate remained a net buyer of bullion in the first half of 2013, albeit at a notably slower pace compared to that seen in 2012.
GOLD SURVEY 2013 - UPDATE 1
Gold has approximately 175,500 tonnes of above-ground stocks, of which more than 150,000 tonnes are either in official sector hands, with private investors, or in jewellery form by mid-2013. This gives the market great depth as, in principle, much of this metal could be relatively easily mobilised in times of need. Consequently gold has traditionally traded at close to fully carry. In July 2013, however, gold went into backwardation (nearby prices higher than forward prices). Understandably, the one month and three month rates went into negative territory first, while the six-month rate started dipping below zero in early August.
Substantial borrowing appeared for two reasons; firstly, very high premia in important Asian markets and long lead times for physical delivery were strong inducements to borrow metal; while secondly, the falling price prompted substantial short sales, which also involves the borrowing mechanism. Central bank lending, however, remained muted.
The market had actually been tightening since the start of the year, despite the liquidation from exchange traded funds, as physical interest developed in response to weakening prices and then exploded in April following the first heavy price fall. After fading slightly, demand rebounded in June, and this time with the strength being broadly sustained, forward prices for maturities of up to six months went into backwardation.
This latter factor was in part due to sustained concerns over counter-party risk; it was this factor that also saw gold dip briefly into backwardation in the immediate wake of the Lehman Brothers’ collapse, which saw the lending market dry up. We do believe, however, that if lease rates rose substantially, then some official sector lending would return. The official sector is the lender of last resort and dislikes a disorderly gold market. Ironically, it was the announcement, at the launch of the Central Bank Gold Agreement in September 1999 (that the sector would not extend lending beyond existing levels), that saw a massive speculative rush to cover, which in turn prompted unprecedentedly high borrowing rates. Subsequently, however, the market has been much calmer as fears of heavy and sporadic central bank sales have been much reduced.
SHORT TERM GOLD FORWARD RATES
GOLD 1-MONTH FORWARD RATE - HISTORICAL
0.8
8 6
0.6
4 0.4
2 %
%
SUPPLY FROM ABOVE GROUNDSTOCKS
A MARKET RARITY; GOLD IN BACKWARDATION
0.2
0
12-month 3-month 1-month
-2
0.0 -4 -0.2 Jan-12 Apr Jul Oct Source: Thomson Reuters GFMS
Jan-13
Apr
Jul
Turning to announced purchasers, Russia was the largest buyer, lifting its official gold holdings by 39 tonnes via a series of regular acquisitions of local mine production. Buy-side interest was also apparent from a number of other CIS countries. For instance, Kazakhstan bought 16 tonnes through regular purchases of domestic gold output. Azerbaijan also reported an eight tonne increase, with these purchases believed to have been made by SOFAZ, the country’s sovereign wealth fund, in the international market. Elsewhere, modest purchases were also reported by Ukraine, Belarus and Tajikistan, who collectively bought four tonnes in the first half. South Korea raised its bullion holdings by 20 tonnes in March. The balance of gross buying in the public domain
26
-6 1999 2001 2003 2005 Source: Thomson Reuters GFMS
2007
2009
2011
2013
consisted of small gains in gold reserves in a handful of countries. The overwhelming majority of these purchases were made by Asian countries, including Nepal, Mongolia, Brunei and Indonesia. Apart from the aforementioned buyers, over 40% of gross purchases or some 80 tonnes were accounted for by undeclared transactions, details of which cannot be released in respect of confidentiality. In some cases, gold was added quietly in the local market. While this amount was somewhat smaller than that seen in the previous year, it should be viewed within in the context of the exceptionally high price volatility. It is not surprising that certain reserve managers decided to postpone their purchases to avoid short-term market volatility.
GOLD SURVEY 2013 - UPDATE 1
SCRAP
Global scrap supply in the first half of 2013 fell a significant 14% to 662 tonnes, representing a correction of around 110 tonnes. The magnitude of the decline was almost entirely driven by gold’s price corrections during the first and second quarters, motivating private consumers to hold on to their gold assets until the general perception of the metal’s price has improved. As such, scrap supply across all regions showed considerable double digit declines, with the fall in India particularly pronounced at 45%. Indeed, instead of selling their old jewellery back into the market, Indian consumers unleashed a buying spree, by significantly adding gold in all forms to their collective holdings once the price dipped. The fall in scrap sales even forced a number of major Indian recyclers to close their doors for a short period. In China, a similar buying frenzy unfolded during the first half, however, declines in scrap supplies turned out to be far less pronounced. This development stood in sharp contrast with another major gold recycling region, Turkey, which tends to be strongly sensitive to price developments when it comes to scrapping their gold assets. Here our estimates point to a considerable correction of around 17% for the first half.
For the second half of the year, we expect some recovery in scrap collection with global scrap supply improving around 11% on first half volumes. However, this moderate improvement will, in our view, by no means make up for the drop registered in the first half, therefore, pushing the full year total down 12% on 2012 tonnages.
Scrap supply in the Middle East was significantly weaker in the first half of 2013, declining 15% year-on-year to a 12-year low. A modest 4% drop in the first quarter stemmed predominantely from an easing price trend and depleted near market stocks, with year-on-year gains only witnessed in a handful of countries, notably Egypt and Syria. However, the near 30% fall in the second quarter was largely price driven after gold corrected sharply in April, limiting opportunities to benefit from asset liquidations and also seeing recycling in all markets in the region fall acutely. Looking at country-by-country breakdown in the first half of 2013, double-digit falls on a year-on-year basis were commonplace across the region, led by Saudi Arabia which dropped by almost a quarter. Elsewhere, scrap supply from Turkey and the UAE dropped by 17% and 13% respectively while most other countries in the region saw falls of at least that magnitude. ABOVE-GROUND JEWELLERY STOCKS & % RETURN OF SCRAP 100
2.5 Scrap %
90
2.0
80
1.5
70
1.0
60
50
Jewellery Stocks
2003 2005 2007 Source: Thomson Reuters GFMS
2009
Scrap return rate (%)
Meanwhile, European scrap is estimated to have fallen a considerable 12% in H1 2013 to around 173 tonnes, representing around 26% of total global scrap supply. Scrap fell the most in the northern European countries, with secondary material from the UK down a considerable 17%. Scrap from the largest recycling country, Italy, however, only fell by 8%, indicating that plenty of material is still available for future collection. When that material will be freed up to the market is uncertain, but it will most likely depend on gold’s price development in combination with the progress of the country’s underlying economic situation.
US scrap supply fell to its lowest level in five years in the first half of 2013 as price declines began to weigh on the market. Prices are still at historically high levels however and obtaining short-term credit remains difficult for many in society. This has seen a continuation of scrap flows both in to and out from pawnbrokers and independent retailers. The largest impact from the price adjustment has been in the cash-for-gold businesses, which now appear to be in a terminal decline after receiving an unprecedented boost from the economic downturn and gold price rally. With gold prices having fallen, and subsequently stabilised, we do not expect US scrap supply to re-test the 155 tonne level seen in 2011. This is in spite of a resurgence of industrial supply thought possible as the economy improves in the years ahead. Total US scrap supply is forecast at 122 tonnes for the year.
0.5
2011
2013F
0.0
27
SUPPLY FROM ABOVE GROUND STOCKS
on-year in the first half of 2013, following gold’s violent price correction of approximately 30% during the same period.
Above-ground Jewellery Stocks (000 tonnes)
——Global scrap supply fell by a considerable 14% year-
GOLD SURVEY 2013 - UPDATE 1
WORLD SCRAP SUPPLY
WORLD SCRAP SUPPLY 1200
800
1000
*
Gold Price
H1-09
H1-11
1800
1600 *
600 *
1400
400 1200
Industrialised Countries
200
H1-13
As outlined above, Turkish scrap supply declined in the first half of 2013, slipping by 17% to the lowest level in more than a decade. The decline in scrap flows came as little surprise given the price sensitive nature of this market and the 7% year-on-year fall in the Turkish Lira (TL) gold price. Despite an improved and more formal collection system, whereby banks are now collecting scrap and partnering with local refineries to allocate the outturn to accumulated gold saving plans, supply in the first quarter eased by 12% as the gold price trended lower and consumers were prepared to wait for a return to higher prices. However, this outcome never eventuated, with gold slumping in April to below TL80/g for the first time since July 2011. This acute fall discouraged recycling and led to a 23% decline in supply in the second quarter as consumers held on to gold assets awaiting a return to higher prices. Scrap supply in India slumped 45% to 30 tonnes in the first half of 2013, the lowest recorded in a half-yearly series since the second half of 2011. On a quarterly basis, first quarter scrap receipts dropped by 16%, driven by expectations that prices would not break Rs. 28,000/10g and would rebound to new highs. However, as prices plummeted through this key level in the second quarter the public refrained from selling and did not rush to exit. Instead, sales dropped significantly to an extent that consumers were more interested in adding gold in various forms into their portfolio. The bullish sentiment was so strong, and indeed scrap receipts so low, that a few of the larger scrap dealers kept their counters shut for more than two weeks. Sales revived by late May and June but still, in aggregate, return was the lowest in a quarter since the third quarter of 2011. In line with the dollar gold price slide scrap supply from the East Asian region slipped by 13% in the first half of this year. Moreover, gold prices in the region’s local currencies (Japan being a notable exception) saw gold
28
Tonnes
Tonnes
* 400
0 H1-03 H1-05 H1-07 Source: Thomson Reuters GFMS *Forecast
Other North America
800
Developing Countries
200
Indian SC Middle East
US$/oz
SUPPLY FROM ABOVE GROUNDSTOCKS
600
East Asia Europe
0
H1-10 H1-11 Source: Thomson Reuters GFMS *Forecast
H1-12
1000
H1-13
fall further in percentage terms. The majority of countries in the region posted double digit percentage losses in scrap supply, with South Korea slumping by nearly 40% year-on-year. Interestingly, historically high prices in Yen/g terms (a function of a weaker currency) in the first quarter failed to elicit higher scrap flows, with supply from Japan declining by a modest 5% year-on-year. In general, the weakness in scrap volumes in the region can be attributed to two main factors. Firstly, depletion of near market stocks and, secondly, the combination of weaker prices and expectation of a price recovery later in the year, which added to the rise in consumer unwillingness to part with their gold assets. Chinese scrap supply in first half eased by 4% to a six‑year low. The domestic gold price remained largely range bound between 315 and 340 yuan/g in the first quarter, with these price fluctuations delivering a 9% year-on-year gain for the period. However, the flow of scrap supply was then hit by the second quarter price retreat, which discouraged consumer liquidations and saw scrap receipts slide 18% in the second quarter, with most willing to wait for a return to higher prices before selling.
WORLD SCRAP SUPPLY (tonnes)
2012
Change 2013 y-o-y
13.H1 13.H2F
Europe
389
350
-10%
173
North America
138
131
-5%
60
177 71
Latin America
112
107
-4%
57
51
Middle East
341
280
-18%
137
142
Indian S-C
166
140
-16%
53
87
East Asia
355
313
-12%
146
167
Other
89
76
-14%
36
40
Total
1,591
1,397
-12%
662
736
Source: Thomson Reuters GFMS
GOLD SURVEY 2013 - UPDATE 1
6. FABRICATION DEMAND •
World gold fabrication increased by 303 tonnes, or 23.5% year-on-year, in the first half of 2013 to 1,591 tonnes as non-industrial sectors rebounded.
•
Leading the way, and accounting for 70% of the increase in fabrication, was jewellery, which rose by 211 tonnes in the first six-months to 1,137 tonnes, a 22.8% increase year-on-year.
•
Average prices were only 7.8% lower in the first half, but much of the buying came in the later months of the period, after April’s large price declines. Demand growth is forecast to slow over the remainder of the year, however, with an expected full-year growth of 3.2%.
to be heavily affected by Indian import restrictions that have seen the country’s imports severely affected since August. The increase in Indian premiums, reaching $57 in August, coupled with rupee depreciation has also seen a large amount of scrap gold enter the market. In the longer term the gold price will have a large impact on tonnages consumed as the price decline has shown the market’s predisposition toward producing and consuming higher carat gold jewellery should the price allow. For the full year we expect total fabrication to increase by 13.2% with gold in jewellery posting a 12.7% year-on-year.
EUROPE
INTRODUCTION The price sensitive markets saw a surge in jewellery demand during the first half of 2013 with Indian fabrication up 25%, China 41% and the Middle East 19%. These stellar performances were caused by a resurgence in buying in the wake of gold’s thirteen year bull run. In China the price fell by 30%, or RMB 100/g, instantly increasing gold’s appeal as an investment vehicle in a variety of forms. The growth in small bars and coins has largely been reflected in the gold jewellery sector, albeit with slightly lower growth rates. Even in the Americas jewellery demand has increased in tonnage terms as the price decline has allowed a small reversal in the trend of substitution away from gold to other materials.
FABRICATION DEMAND
——Total European fabrication fell by just 1% year-onyear in the first half of 2013 as losses in jewellery offtake and other segments were mitigated by a notable rise in coin demand. ——Jewellery fabrication in Europe dropped by an estimated 5%, mainly due to weaker Italian and French jewellery offtake.
Looking ahead, the pace of growth is forecast to slow in line with the recovery of the gold price toward $1,400/oz. We forecast that the second half will see modest growth of 3.1%, or 30 tonnes, as the opportunistic buying in the Middle East and Asia subsides. The market is also likely
Italian jewellery fabrication fell by 4% year-on-year in the first half of 2013 to just 42 tonnes. To put this in perspective, jewellery offtake has plummeted by more than 80%, or 219 tonnes, from the peak volume seen in the late 1990s. Having said that, it is worth stressing that the first half losses were mitigated by a marked decline in gold prices, particularly in the second quarter of the year, which saw a surge in external demand. If we look at the year-on-year change for jewellery exports, this showed a rise of 34% in the first three months of 2013 when prices averaged $1,632 (down by 3% from a year earlier). In April-May, direct Italian shipments saw a more noteworthy rise of 50%, buoyed by the 10% decline in second quarter dollar gold prices. On a regional basis,
WORLD GOLD FABRICATION
WORLD JEWELLERY FABRICATION
(tonnes)
2012
Change 2013F y-o-y
13.H1 13.H2F
Change (tonnes) 2012 2013F y-o-y 13.H1 13.H2F
Europe
255
252
-1%
128
123
Europe
172
166
-3%
82
83
North America
180
211
17%
107
103
North America
62
67
8%
28
39
Latin America
48
51
6%
24
27
Latin America
40
42
5%
20
22
283
377
33%
217
160
Middle East
229
258
13%
146
111
Middle East Indian S-C
767
824
7%
441
383
Indian S-C
650
709
9%
370
339
East Asia
930
1,082
16%
591
492
East Asia
651
800
23%
444
356
Africa
43
49
14%
26
23
19
20
5%
10
10
Oceania
14
19
36%
10
9
3
3
0%
2
1
CIS
94
97
3%
47
49
70
73
4%
36
38
2,615
2,960
13%
1,591
1,369
1,896
2,137
13%
1,137
1,000
World Total
Source: Thomson Reuters GFMS
Africa Oceania CIS World Total
Source: Thomson Reuters GFMS
29
GOLD SURVEY 2013 - UPDATE 1
FABRICATION DEMAND
jewellery exports to Italy’s largest destination, the United Arab Emirates (known for its historical price sensitivity), also suggest a clear price link, as these rose by 68% year-on-year in the first five months of the year. Most other countries also recorded significant gains, with weaker gold prices singled out as the chief driver. As shown in the graph below, jewellery exports to pricesensitive countries in East Asia rose by 29% in the first five months, thanks in the main to a rise in shipments to China/Hong Kong as their gold jewellery consumption surged in response to the near 10% drop in local gold prices. Similarly, a rebound in US jewellery consumption on the back of weaker gold prices, as well as improving consumer sentiment, largely explains the double-digit percentage rise in its imports from Italy over the JanuaryMay period. Turning to Europe, despite a still challenging economic environment, exports to the EU-25 were up by almost 6% year-on-year, supporting our view that prices played a significant role. ‘Other Europe’ recorded the largest increase by region, with direct shipments from Italy rising by approximately 75% on a year-on-year basis. This was largely thanks to buoyant flows to Switzerland (the distribution centre for the up-market brands) and to Turkey (mainly for re-export to Russia). Elsewhere, direct exports to Latin America dropped by less than 1% in January-May, as higher exports to Mexico and Brazil were insufficient to offset the drop in direct shipments to other countries within the region. By contrast, robust flows to Algeria, Libya and South Africa help to explain much of the increase for the ‘Others’ category in the graph below. While the first five months of 2013 saw robust export demand, gold jewellery consumption in Italy’s domestic market remained stagnant, with volumes falling by 10% year-on-year. This was largely a reflection of long ITALIAN OFFICIAL JEWELLERY EXPORTS Middle East Other Europe* East Asia EU-25 N America
Jan - May 2012
Others
2013
L America 10 12 6 8 Tonnes Source: Thomson Reuters GFMS; Calculations based on Italian export data. Shows only the direct flow of finished pieces. *incl Russia & Turkey 0
30
2
4
EUROPEAN FABRICATION AND HALLMARKING SERIES Italian Jewellery Fabrication (Index based on Jan-Jun each year, with 2007 =100) 2008 2009 2010 2011 2012 Home
29
Export 81 58 57 49 45 Swiss Watch Case Hallmarking (Index based on units for Jan-Jul period, with 2007=100)
44
101
Total
2010
2011
2013
2009
2010
40
2012
2008
2009
48
102 68 60 83 108 Hallmarked UK Jewellery Fabrication and Imports (January-June each year, tonnes)
2008
49
2013
32
84
2011
2012
2013
10.6 7.3 7.2 5.8 5.7 5.1
running structural changes, such as a shift from plain jewellery pieces towards gemset, and macroeconomic factors with ongoing economic problems continuing to weigh on consumer sentiment. Competition from cheaper forms of jewellery, such as high-end costume or silver jewellery, also helps to explain the decline in jewellery fabrication. Among other factors driving the 4% drop in Italian jewellery fabrication is market share loss, typically to Asian producers, as a result of higher labour costs, duty disadvantages in some markets and the improving quality of rival producers, such as China. This, for instance, explains much of the decline in Italy’s share of US jewellery imports to just 12% last year, compared to almost 40% in 1998. In Germany, jewellery fabrication fell by a modest 3% with business performances at various retail points a mixed bag. A trend that has surely continued is the shift from gold towards the use of alternative materials such as palladium. Indeed, driven by tighter legislation, fabricators are no longer allowed to manufacture jewellery pieces containing nickel, as various cases have lead to significant skin irritations. Nevertheless, domestic demand has remained rather stable with 18-carat pieces and the higher value brands upholding relatively well. The lower price sensitive segments, however, have shown some considerable signs of weakness. In terms of coloured jewellery, rose and red gold slightly increased whereas palladium-based white gold remained stable 100% OPACITY throughout the first half. Switzerland continued to run alongside developments in Germany and saw its jewellery fabrication decline by an estimated 3% in the first half. Swiss hallmarking figures, however, paint an even less optimistic picture, falling 7% over the same period. To a certain degree the drop can be explained by previous excessive stock-building,
GOLD SURVEY 2013 - UPDATE 1
when hallmarking increased just shy of 30% in the first half of 2012, and according to some of our contacts, this has now been significantly drawn down. On top of that, exports to Hong Kong and the Far East also witnessed a modest decline.
NORTH AMERICA
Jewellery fabrication in France witnessed a considerable decline of around 16% in the first six months of 2013. Much of the drop, however, finds its origin in more structural development as opposed to a response to the recent price dip. Indeed, the gradual shift from the middle segment into either the high-end or lower-end of the market continued with sales volumes under further downward pressure. With the gold price increasing in recent years, jewellery has become more expensive, which motivated many French consumers to either allocate their funds towards other consumer goods or shift into the lower more affordable end of the market. The large middle segment, therefore, has continued to be eroded, as illustrated in general sales of 18-carat being considerably in decline while those of 9-carat almost doubled in the fist half. Sales of branded pieces, however, have continued to perform robustly, whereas more tailor-made gemset pieces have also managed to uphold reasonable sales levels.
US jewellery demand is forecast to recover strongly this year as a combination of factors support demand. Firstly, the relatively low base set in 2012 after Super Storm Sandy and a negative national news flow over the 2012 holiday period put a dampener on jewellery spending. Secondly, a modest economic recovery in 2013 coupled with increasing consumer confidence, and thirdly, a lower gold price. It should be noted, however, that disposable incomes remain under pressure, unemployment is stubbornly high at 7.4% as of July, the labour participation rate remains at 30-year lows, and increased consumer spending has not, as yet, been focused on jewellery. Instead consumers’ disposable income increases, as reflected in higher retail sales figures in the US, up 4.5% in the first seven-months of the year, have been more heavily focused on electrical goods and home improvement sectors.
Russian jewellery fabrication increased by an estimated 5% in the first half of this year, to around 25 tonnes. This marked a five-year high, but still fell short of the 28 tonnes of jewellery fabrication witnessed in the first six months of 2008. Similar to the trend in previous years, this robust outcome was largely driven by growing demand for gold jewellery amongst the burgeoning middle class, supported by relatively stable economic conditions. That said, while the upward trend in Russian fabrication continued into the first half of 2013, the rate of growth slowed somewhat compared to past years, undermined by the slightly weaker economic environment. Looking ahead, the second half looks likely to see a further increase in jewellery offtake, which suggests another robust performance for the full year, with total volumes likely to approach or even surpass the pre-crisis level seen in 2008.
half demand up 6.6% in the United States, with continued growth forecast.
Lower gold prices are beginning to have a major impact in the North American jewellery sector, however, as the fall in price is allowing more retailers to produce gold pieces at the prices that they are trying to target. So, for example, a $200 item may now move from 10 to 14-carat gold, the first time this has happened in over a decade. The trend in substitution back towards gold is still in its infancy however, and while jewellers are keen to move away from lower carat or plated products, gold prices will need to remain stable or decline further. If this happens, another pillar of demand growth may emerge in the year ahead should a higher gold content in fine jewellery pieces coincide with higher retail sales. Thomson Reuters GFMS estimates US jewellery fabrication demand in the first six-months of 2013 at 23.9 tonnes, an increase of
FABRICATION DEMAND
Official hallmarking statistics in the UK pointed towards a stable development in terms of volumes. The gold content per average piece, however, saw a small increase, as the gross weight per piece declined by a larger degree than the fine weight. Comparable to France, it was the higher-end 22-carat market that still managed to hold up well, whereas all other segments recorded considerable declines in sales volumes.
——Price declines see an end to gold substitution; first
US VERSUS EU-27 JEWELLERY IMPORTS 2008 2009 2010
Jan - Jun United States EU-27
100% OPACI
2011 2012 2013 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Billions of US$ Source: Thomson Reuters GFMS; Calculations based on US and EU-27 import data
31
7.7% year-on-year with a forecast increase of 21.9% yearon-year for the second half, a 16.0% annual increase. Total forecast fabrication demand of 62.3 tonnes is still substantially below the 130.0 tonne pre-crash level seen in 2005, however, largely due to substitution.
MIDDLE EAST
Looking at total gold consumption in the US, taking into account trade data and inventory changes, we expect 91.9 tonnes to be consumed this year, up 5.3% from 2012’s level of 87.3 tonnes. To put this in context 2005 saw 308.4 tonnes consumed in the US market, although in value terms the decline from 2005 is forecast to be just 3.2%, owing to the rise in gold prices from an average of $445/oz to our forecast of $1,446/oz for 2013.
In the first half of 2013 Turkish bullion imports registered at the Istanbul Gold Exchange surged over 200% to 180 tonnes. Moreover, if scrap and mining doré imports are included, the total import figure ballooned to an estimated 210 tonnes. Three quarters of the import activity in the first half occurred in the second quarter as the acute fall in the dollar gold price fuelled a buying frenzy in the domestic market, with demand for investment products (chiefly coins) and jewellery fabrication surging as a result.
Any reversion towards higher gold volumes will take time, and more importantly, price-stability to develop. Gold’s role in jewellery in North America has been steadily eroded since the early 2000’s along with gold’s thirteen years of consecutive annual price increases. Indeed, jewellery fabrication in the US in 2000 peaked at 181.8 tonnes against just 53.7 tonnes in 2012. Under our base case scenario we expect 2012 to be the nadir in US fabrication, but a return to peak volume levels could be many years, or even decades, away considering the price outlook. In value terms however it is possible that 2014 will see the market regain new highs. Gold has also lost a lot of market share to silver over the past decade, with both branded and independent jewellers moving into the cheaper material. In addition to this has been the rise in the amount of plated and bonded gold jewellery in the market, although this is viewed as having a lower level of customer loyalty than purer forms of gold, and hence substitution back to carat jewellery may be quicker.
32
19% in the first half, due primarily to a price related resurgence in the second quarter.
A declining price trend in the first quarter of the year saw demand for jewellery fabrication benefit from both a modest rise in retail activity in the domestic market and from an uptick in activity from key export destinations, with our estimate placing fabrication growth at a modest 7% for the period. The price collapse in mid-April saw gold in domestic terms slump briefly below TL80/g (a level not seen since July 2011), generating a wave of demand for gold products. Such a robust outcome rapidly drained the supply chain and led to a shortage of physical gold. This lack of an access to fresh bullion forced local premia above $40/oz and saw several fabricators close down briefly while they awaited fresh supplies. In spite of this, fabrication in the second quarter rallied 36% year-on-year, lifting first half offtake to 51 tonnes, a 23% year-on-year increase and the highest level recorded since 2008. This sharp rise in consumption in the second quarter was largely buoyed by demand for higher purity items as consumers looked to these segments for investment potential. Indeed, while all segments of the industry TURKISH BULLION IMPORTS 60 50
125 Gold Price 100
40 75 30 50 20 25
10 0 Jan-10 Jan-11 Source: Thomson Reuters GFMS
Jan-12
Jan-13
0
Gold price (TL/g)
For the jewellery industry to reengage heavily with gold we view prices as having to stay in a $1,300-1,500/oz range, or lower, and preferably below the $1,400/oz level. Should this happen, and market sentiment is that it will, then we expect continued growth in the amount of gold consumed in the North American market. It will take time however to replace much of what silver has taken away in the previous ten years. Some of the changes to the jewellery market since the turn of the millennium are also likely to be generational shifts. This is especially the case when it comes to the blurring of fine and fashion jewellery and the rise of alternative materials in lower-priced pieces. While 2013 may have seen the end of moves away from gold on price grounds, alternate materials are unlikely to leave the market altogether.
——Jewellery fabrication in the Middle East jumped
Tonnes
FABRICATION DEMAND
GOLD SURVEY 2013 - UPDATE 1
GOLD SURVEY 2013 - UPDATE 1
benefited from the weaker price environment, it was primarily the 22-carat market that recorded the largest gains, as these plain styles are often viewed as a simple investment source, due to the fact that they can easily, and without significant loss, be sold back to retailers should the need arise. Low purity items (such as 8-carat) which had gained in popularity in recent years, lost ground in the weaker price environment, while diamond jewellery enjoyed another period of healthy sales. Jewellery exports also enjoyed a resurgence, boosted largely by demand from across the Middle East. Trade statistics suggest that jewellery flows to the UAE, Iraq, and Russia (the top three export markets) all rose sharply and generated significant gains in output of 22-carat for the former, 14-carat for Russia, and 21-carat for the Iraqi market which was perhaps the most active in the region.
In the last few years there has been a notable shift to lower carat designs in Saudi Arabia due primarily to higher prices and changing societal trends. While traditional 21-carat items were a beneficiary of the lower MIDDLE EAST NEW GOLD ABSORPTION
250
Gold Price
1800
1400 1200
Tonnes
150
Oil Price
1000 800
100
600 400
50
200 0 H1-05 H1-07 Source: Thomson Reuters GFMS
H1-09
H1-11
0 H1-13
US$/oz (Oil price reindexed to H1-05)
1600 200
Jewellery consumption in the United Arab Emirates (UAE) looks to have rebounded strongly in the first half of 2013, jumping 20% and reversing several years of difficult trading conditions, as lower gold prices stimulated both the wholesale and retail value chains. Domestic demand in the first quarter benefitted from rising tourist visitor numbers and a successful Dubai Shopping Festival (DSF), during which heavy promotion and discounting led to robust retail sales and an estimated double-digit yearon-year rise in jewellery offtake. The market exploded in mid-April when gold prices collapsed with demand across the region surging as consumers rushed to take advantage of the lower price point. Dubai wholesalers struggled to meet demand as the market was flooded with buyers from Northern Africa, India and the Middle East, pushing premia higher as stock supply was initially limited. Most of the sales activity centred on higher purity items, both 21- and 22-carat the mainstay of the demand surge, with 18-carat and diamond jewellery rising only at the margin. Jewellery consumption in the second quarter surged 32% year-on-year, driven higher by a wave of demand from chiefly India and Iraq, with the latter lifting demand for 21-carat significantly for this key market. Iran’s jewellery fabrication benefited not only from the second quarter price correction, but also as a result of safe haven purchases resulting from the uncertainty surrounding the new government regime and the economic performance of the Islamic state. Iran’s inflation stood at over 35% (though many believe the official figures are vastly underestimated), while youth unemployment was 28% and the rial, the national currency, remained under some pressure in the first half-year following its 40% slump in September 2012. The April price drop generated a surge in demand for both gold bars and jewellery as a hedge against these economic factors, lifting fabrication for the half by 20%. Egypt recorded a healthy 16% rise in jewellery fabrication in the first half. After collapsing during the unrest in 2011, the domestic market had been steadily rebuilding. The lower prices this year also assisted in replenishing previously liquidated consumer stocks. Recent events have again seen the market forced to close, as the country’s political environment remains on a knife edge.
33
FABRICATION DEMAND
In line with most other price sensitive markets, jewellery fabrication in Saudi Arabia recorded a healthy rise during the first half of 2013. The 17% jump in fabrication was largely concentrated in the second quarter as weaker gold prices reinvigorated a retail market that, until this year, had been under severe pressure. The initial price plunge below $1,400 in mid-April generated an immediate impact at the consumer level, as the public rushed to replenish stocks at the lower price point, stimulating demand for both 21-carat and 18-carat items. After several years of lower output and a reduced work force, domestic fabricators faced difficulty in meeting the initial wave of demand, which saw stocks dry out across the Kingdom. This led to a sharp rise in imported products to meet the void in supply, with flows from Dubai the main source of replenishment.
price environment and picked up sharply (from a low base), it was again the 18-carat segment that saw the strongest gains during the period, with the younger generations migrating towards these lighter and more fashioned orientated designs.
GOLD SURVEY 2013 - UPDATE 1
INDIAN SUB-CONTINENT ——Indian jewellery fabrication surged by 25% year-onyear, to an estimated first half total of 350 tonnes.
——A sharp fall in prices, frantic buying, and inventory
this fall, however, were imports in second quarter, which surged by 74% to 321 tonnes, the highest ever recorded since the third quarter of 2011. Our estimates for unofficial flows are of almost 70 tonnes, implying gross imports of approximately 630 tonnes in the first half-year.
Indian jewellery fabrication increased by 25% in the first half of this year to almost 350 tonnes, the highest since first half of 2011. These gains can be attributed to some demand spill-over from December 2012 into January, and to the price fall during the second quarter, the period when fabrication surged to highest level since the third quarter of 2008. Demand was active across all segments of the industry with spending from rural to middle income urban households, primarily in investment grade plain jewellery. Diamond jewellery had its share of healthy gains too, due to a resulting consumer surplus. The demand surge was so strong that it led to an inventory clear out at most retailers and the replenishment orders were 30 to 50% more than the average sale, in order to reduce the average price of inventory given the price decline of more than 10% from peak. The strategy paid off as the days thereafter saw premia rise to $28/oz vs a normal rate of $2/oz due to global supply constraints.
Drilling down to official flows on a monthly basis; following the duty hike to 6% on 21st January, flow tapered in the consecutive two months to levels below last year’s monthly average. This was followed by a 134% rise in April from March to 131 tonnes, as prices plummeted. The trend continued into May, rising to a record monthly import of 161 tonnes. The surge in May was a result of panic buying and hoarding by nominated agencies, and premier and star trading houses, after the RBI imposed ban on banks to import on consignment basis (for domestic supply) with effect 13th May. However, it reached consumers at premia ranging from $6 to $20. And by 4th June the rule was extended to all importing agencies, followed by a duty hike to 8%. That said, gold continued to be available on lease but at a rate higher and a facility few availed. Overall it resulted in imports of just 28 tonnes in June.
A discussion on Indian jewellery fabrication remains incomplete without detailing the bullion flows and legislative measures taken by the Ministry of Commerce and the Reserve Bank of India (RBI) to curtail gold imports in an effort to reduce the current account deficit. In terms of the first half of this year, we estimate that gross bullion imports excluding unofficial imports totalled 563 tonnes, 26% higher than last year. Looking at the flow on a quarterly basis, the first quarter posted an 8% decline year-on-year. More than compensating
July showed a decent recovery despite purchases being on outright basis. However, the business came almost to a standstill after a new legislation from the RBI on 22nd July; this is the 80/20 principle, whereby the imports for domestic supply became tied to exports. The clauses in that policy also ensured that seasonal surges in imports were curtailed. This was followed by a duty hike to 10% on 13th August and these new restrictions pushed the premium in the local market to a record high of $57. However, as the rupee depreciated and gold in India surged to fresh records, demand vanished; supply surged in the form of scrap gold and unofficial flows thus pushing prices to a discount from spot for unbilled purchases. The legislation should not have been
INDIAN BULLION IMPORTS*
INDIAN JEWELLERY FABRICATION
150 Gold Price
250
75
20
50 10 25
34
35
Scrap used in Fabrication Jewellery Fabrication excluding Scrap
Gold Price 30 25
200
20 150 15 100
10
50
Jan-13
0
0 Q1-09 Q1-10 Source: Thomson Reuters GFMS
5
Q1-11
Q1-12
Q1-13
0
Rupees/10g (thousands)
100
Rupees/10g (thousands)
30
0 Jan-10 Jan-11 Jan-12 Source: Thomson Reuters GFMS *including re-exports, excluding replenishment
300
40
Tonnes
125
Tonnes
FABRICATION DEMAND
expansion is said to have supported demand.
GOLD SURVEY 2013 - UPDATE 1
EAST ASIA ——East Asian jewellery fabrication jumped 35% yearon-year to a new record level. ——Chinese jewellery fabrication surged over 40% in the first half of 2013 as lower gold prices fuelled demand. CHINESE GOLD JEWELLERY FABRICATION 200
400 Gold Price
300
Tonnes
200 80
150 100
40
50 Q1-12
Q1-13
0
Yuan/gramme
250
120
Q1-11
220 200
750 180
Tonnes
East Asian GDP**
160
500
140 250 120
Exchange Rate** 0
H1-09 H1-10 H1-11 H1-12 Source: Thomson Reuters GFMS *The sum of total fabrication and physical bar investment **Weighted average: Indonesia, South Korea, Thailand
100 H1-13
The extraordinary growth of Chinese jewellery fabrication continued in the first half of this year, delivering a 41% gain and a record of 345 tonnes. The descent of the gold price, which dropped in the first half by nearly 30% or RMB 100/g, played a key role. Following over a decade of rising prices, two sharp price dips and a newly established price base provided consumers with a rare buying opportunity. This year’s anecdotal information underlined the importance of “Chinese Aunties” who underpinned jewellery consumption during the period. Being in charge of domestic budgets the Chinese Aunties quickly seized the chance to stock up on seasonal gifts, purchases of which were normally scheduled for the later part of the year. Additionally, the combination of rising income levels, rapid urbanisation and growth of retail space coupled with concerns regarding real inflation added a further impetus to jewellery consumption in China. The first quarter surged 20% year-on-year, followed by an uncommonly high (for the season) 72% growth in the second quarter. Both quarters were marked by low stocks and as demand drained an already lean supply chain shortages of physical gold bars impacted the fabrication pipeline. Facing the demand surge many fabricators enhanced their gold fabrication capacity by re-assigning larger resources to gold jewellery at the expense of other metals, platinum being the most obvious victim.
350
160
0 Q1-09 Q1-10 Source: Thomson Reuters GFMS
1000
The 24-carat variant continued to dominate the market owing to its lower fabrication charges, allowing it to function both as an adornment and investment vehicle. Its sister segment, 18-carat or “K Gold” also benefited from the rush albeit on a reduced scale as more expensive pricing and consumers’ affinity to the investment allure of high purity 24-carat metal played a key role. With the real estate market performance firmly controlled by the government and a disappointing
35
FABRICATION DEMAND
Initial estimates for the first half of 2013 show that Pakistan jewellery fabrication increased by almost 15% year-on-year. While remaining at historically low levels, fabrication rates received a boost this year due in part to the build up in trade stocks for the Ramadan trading period starting late in the second quarter, with this seasonal demand coinciding with a significant correction in the gold price. The acute drop in price in April saw consumers rush to replenish earlier liquidated items and to purchase jewellery ahead of the upcoming religious and wedding seasons at the lower price point. Demand eased in May before another price fall in June again reinvigorated the domestic market, lifting local fabrication and boosting jewellery imports.
EAST ASIAN TOTAL DEMAND*
GDP (US$bn) & Exchange Rate (Normalised)
a challenge had it not been for the clampdown on the round tripping activity with rules laid down on 3rd May by Ministry of Commerce and Industry. To put this in perspective; last year India exported 214 tonnes gold in the form of jewellery, medallions, coins and bars of which 170 tonnes was round tripped. A quarterly comparison this year revealed drop in round tripping from 41 tonnes in first quarter to a mere three tonnes in the second quarter as a result of these restrictions. In order to overcome this supply shortfall, retailers have been offering incentives for customers to exchange their old jewellery for new pieces. Also important to note is that the duty on imported gold jewellery is now on par with that of bullion. There are already reports of jewellers exploring sourcing part of their requirement from manufacturers abroad; as a way of managing premia and circumventing regulations during peak demand.
GOLD SURVEY 2013 - UPDATE 1
stock market performance, investing in gold (jewellery), especially in the new price level environment, provided an attractive alternative. Swelling cash savings deposits, which (according to The People’s Bank of China’s data at the end of June) exceeded the equivalent of US$ 7.1trillion and general public hunger for investment vehicles found an outlet in physical gold. While gold jewellery performed astoundingly, gold investment bars delivered even more explosive performance (see chapter 3 for this).
Jewellery consumption in Hong Kong increased by over a third in the first half of the year, assisted in the main by a 55% surge in the second quarter due largely to the sharp price correction in mid-April. In addition to the price impact, jewellery demand also benefited from a near 14% rise in tourist visitors during this period, with the number of mainland visitors jumping by more than 20%, to almost 19 million. Jewellery offtake in Indonesia jumped to a five-year high in the first half of 2013, as a weaker price environment stimulated consumer demand across the archipelago. According to Thomson Reuters GFMS estimates, jewellery fabrication rose by almost 23% for the period, assisted in the main by a 57% surge in the second quarter as gold in rupiah terms fell sharply. In contrast to most markets, the immediate reaction to the April price fall was largely cautious as consumers waited for a clear price indication. However, as prices recovered from their lows, demand then surged as expectations of higher prices saw both consumers and wholesalers rush to replenish stock. Indeed, the magnitude of the order book AUSTRALIAN GOLD BULLION EXPORTS
Other
UK
India
125
35
Other Switzerland
Rupiah
Baht
125
30 100
75
10
Jan-12
Jan-13
50
100
30
Australia
Gold Price
25
75
20 15
50
10 25
0
Q1-10 Q1-11 Source: Thomson Reuters GFMS
5
Q1-12
Q1-13
0
Baht/Baht bar (thousands)
150
20
36
A weaker price environment also delivered a much needed boost for Thailand’s jewellery sector, which had suffered several years of hefty falls. The first quarter offered fabricators little confidence as a soft export sector and weak domestic sales saw demand ease by 5% year-on-year. However, the price correction in the second quarter had an immediate impact on both domestic consumption and export orders, lifting fabrication
175
40
0 Jan-10 Jan-11 Source: Thomson Reuters GFMS
Malaysian jewellery fabrication jumped by over 37% in the first half of 2013, boosted by a healthy domestic market and a return of export demand from the Middle East. Not surprisingly, lower gold prices were the main catalyst for the sharp rise in offtake, with fabrication surging over 65% in the second quarter alone, as the supply chain rushed to replenish stocks after the major price correction. Export focused fabricators indicated that they could have enjoyed even greater gains during this period if it were not for a lack of skilled labour (most factories had been forced to reduce staffing levels significantly in recent years as demand had declined).
THAI BULLION IMPORTS
Gold prices (Index, Jan -10 = 100)
50
East Asia
In Vietnam, the impact of lower prices in the second quarter saw domestic fabrication rebound strongly, reversing the first quarter decline and delivering a 1% rise in the first half. The price correction in April generated a wave of fresh demand as both consumers and the supply chain replenished stocks. Investment motives drove demand for high purity items, especially for 24-carat rings that were being purchased as a quasi-investment option, as access to investment bars was limited as a result of shifting policy on gold ownership in the country.
Tonnes
60
Tonnes
FABRICATION DEMAND
Industrial fabrication, largely driven by the gold bonding wire sector in electronics, remained relatively stable in the first half of the year. In this sector the forces of substitution, thrifting and lower shipments to the developed world markets offset the higher demand for electronic components from China and South East Asia.
pushed fabricators to their limits, with daily overtime and weekend work being common among the larger fabricators. A recent research visit to Indonesia revealed that migration to low purity jewellery has eased slightly this year with higher purity designs (mainly 17-carat) appealing to consumers at the lower price environment.
GOLD SURVEY 2013 - UPDATE 1
INDUSTRIAL DEMAND
in the first half of the year. The relatively modest decline was largely due to a solid performance in India, which registered 6%
——First half industrial demand fell by 1% as a weak
growth in the first six months of the year. Weakening gold prices
economic environment and substitution with nongold alternatives impacted demand.
stimulated offtake in the price sensitive segment of jari demand (golden thread often used in textiles). Plating salts (mainly gold potassium cyanide) which are widely used in electroplating in
Gold demand in industrial applications slipped by 1% in the
decorative, giftware and electronics industries also benefited
first half of 2013, with losses felt in all key segments. The
from weaker prices. Indeed, the sharp price corrections in the
electronics industry, which has struggled in the fragile economic
second quarter stimulated re-stocking of relatively depleted
environment, saw offtake ease by just 1% year-on-year as
inventory levels. Additionally, a modest 1% gain in China, the
a weak performance in key fabrication markets was largely
largest market for plating salts, added further support to the
offset by solid growth in Japan, which posted a 6% increase for
segment. Finally, gold used in dental applications continued
the period. Elsewhere, the combination of weak orders from
its long-term declining trend, falling by 5% year-on-year, due to
industrialised markets combined with ongoing substitution
ongoing substitution in favour of alternative materials, such as
and thrifting continued to erode gold use within electronics as
ceramics or palladium rich alloys.
fabricators looked to cheaper alternatives, with copper bonding Looking ahead, we expect to see industrial gold demand remain
to win market share at gold’s expense. Demand for gold from
little changed year-on-year. Weaker prices and further signs of
the other industrial & decorative segment suffered 1% decline
an economic recovery will likely be offset by substitution losses.
WORLD FABRICATION OF GOLD BONDING WIRE
GLOBAL SEMICONDUCTOR BILLINGS
80
80 20
H1-09 H1-10 H1-11 Source: Thomson Reuters GFMS, GFMS OECD Stats *Estimate
H1-12
H1-13
60
offtake by almost 55% year-on-year. The price collapse encouraged consumers back to the market with demand surging for investment bars, plain chain and “ornament” jewellery (mainly 965 purity), with the latter often being purchased as a simple investment tool in regional areas. According to Thomson Reuters GFMS’ analysis, US imports of Thai gold jewellery rose by over a tenth in the first half as weaker gold prices and a strengthening economy boosted the order book. Elsewhere, demand from the Middle East (chiefly Dubai) and China (via sales to Hong Kong) was also supportive during this period, while trade with the Eurozone remained moribund due to the weaker economic environment in the region. Weaker prices in the first and a sharp price correction in the second quarter did not prevent South Korea’s jewellery fabrication from shrinking 12% year-on-year.
Number of shipments (millions)
Tonnes
*
40
Europe
Other Asia Pacific
Americas
Japan
200
Electronics Fabrication
160
160
120
120
80
80
40
40
0
H1-07 H1-09 Source: SIA, Thomson Reuters GFMS
H1-11
H1-13
Global electronics fabrication (tonnes)
100
Industrial Production (Q1 2009 = 100)
*
60
0
200
120 Industrial Production
0
Consumer spending was undermined by weakness in the country’s GDP, shrinking industrial production and an uncertain job market. In terms of industrial demand, a slowdown in electronic component exports as well as substitution losses to copper led to an estimated 15% drop in gold wire fabrication. The first half of the year brought a 10% hike in Japanese jewellery fabrication. Despite historically high prices (breaking the Yen 5,000/g historical barrier), first quarter fabrication still posted 9% year-on-year growth as consumer interest returned on the back of a soaring stock market and growing domestic economy. The second quarter presented consumers with further opportunities as gold prices fell sharply in April and then again in June. Curb or kihei chains enjoyed high popularity as low fabrication costs and their appeal as a quasi investment option attracted consumers.
37
FABRICATION DEMAND
wires and to a lesser extent silver and aluminium continuing
GOLD SURVEY 2013 - UPDATE 1
PRICE APPENDIX GOLD PRICES AND LEASING RATES IN LONDON AND EQUIVALENTS CONVERTED AT CLOSING DAILY EXCHANGE RATES (January-July 2013)
London London 1-month 12-month AM fix PM fix Euro/kg Yen/g Yuan/g Rupees A$/oz Rand/kg Leasing Leasing US$/oz US$/oz /10g Rate % Rate %
Period Average
1,488.95
1,488.44
36,469
4,588 295.67
28,392 1,485.95 444,708
-0.16
0.42
Maximum
1,692.50
1,693.75
41,238
5039 339.27
30,970 1,622.52 490,473
0.30
0.55
Minimum
1,203.25
1,192.00
30,378
3,872 235.22
25,270 1,326.99 394,646
-0.11
0.33
Range:Average
9%
8%
8% 9% 8% 20%
7%
9%
Monthly Average
Jan
1,671.89
1,670.95
Feb
1,630.69
1,627.59
Mar
1,591.01
1,592.86
Apr
1,485.90
1,485.08
May
1,416.14
1,413.50
Jun
1,342.70
Jul
1,284.35
40,395
4,784 334.24
30,691
39,195
4,871 325.20
30,091
39,519
4,854 318.33 29,658
1,540
470,776
36,637
4,676 294.35
1,430
434,274
0.01
0.41
35,012
4,588 279.07 26,898
1,428 425,504
0.12
0.49
1,342.36
32,901
4,221 264.74
27,359
1,428 434,480
0.07
0.44
1,286.72
31,624
4,123 253.77
26,135
1,405
0.23
0.50
27,913
1,591
473,134
-0.09
1,579 464,669
-0.02
0.37
0.04
0.40
410,121
0.36
Quarterly Average
Mar
1,631.20
1,630.47
39,703
4,836 325.92
30,147
1,570 469,526
Jun
1,414.92
1,413.65
34,850
4,494 279.39
27,390
1,429
431,419
-0.02
0.38
0.07
0.44
APPENDIX
Monthly Maximum
Jan
1,692.50
1,693.75
41,238
4,912 339.27 30,970
1,613 490,743
-0.06
0.39
Feb
1,678.00
1,674.25
40,082
5,035 335.17 30,600
1,623 480,569
0.07
0.42
Mar
1,611.50
1,613.75
40,323
4,937 322.42 29,925
1,555 483,345
0.07
0.42
Apr
1,597.75
1,583.50
39,654
5,039 314.53 29,800
1,516
469,188
0.03
0.43
May
1,476.50
1,469.25
36,141
4,704 290.79
1,459
454,451
0.19
0.52
Jun
1,410.00
1,404.00
34,608
4,506 276.61 28,350
1,474 452,730
0.12
0.49
Jul
1,340.00
1,335.00
32,433
4,299 263.37 28,640
1,465
0.30
0.55
27,480
419,638
Monthly Minimum
Jan
1,632.25
1,645.25
39,430
4,639 329.52 30,380
1,570
452,991
-0.11
0.34
Feb
1,568.50
1,576.50
38,196
4,689 316.03 29,360
1,530 449,749
-0.10
0.33
Mar
1,570.00
1,574.00
38,818
4,721 314.67 29,446
1,524 459,749
-0.04
0.37
Apr
1,378.00
1,380.00
33,791
4,337 274.32 25,670
1,333 406,766
-0.03
0.37
May
1,353.75
1,354.75
33,878
4,463 267.39 26,050
1,383
412,114
0.02
0.44
Jun
1,203.25
1,192.00
30,482
3,872 235.22
25,270
1,327 394,646
0.02
0.41
Jul
1,225.50
1,212.75
30,378
3,935 239.12
25,910
1,338 395,038
0.12
0.45
Monthly Range Jan
4%
3%
4%
6%
3%
2%
3%
Feb
7%
6%
5%
7%
6%
4%
6%
7%
Mar
3%
2%
4%
4%
2%
2%
2%
5%
Apr
15%
14%
16% 15% 14%
15%
13%
14%
May
9%
8%
5%
5%
10%
Jun Jul
6%
5% 8%
8%
15% 16% 13% 15% 16% 11% 10% 13% 9% 10% 7% 9% 10% 10% 9% 6%
Source: Thomson Reuters. Lease rate values are calculated, not market values, hence the appearance of negative rates.
38
CONNECTING THE GLOBAL FINANCIAL COMMUNITY WITH
NEW WAYS TO PROSPER
Use Thomson Reuters Eikon to drive profits, connect with colleagues, counterparties and customers, and manage risk and regulation. Equipped with marketmoving news from Reuters, analytics, pricing, data, and commentary it allows you to see and seize opportunities ahead of the competition.
FOR MORE INFORMATION VISIT
thomsonreuterseikon.com
© Thomson Reuters 2013. All rights reserved. 0313 9136998.
REUTERS/Michael Buholzer
METALS FUNDAMENTALS DATABASE Comprehensive metals fundamentals from one accessible source Metals prices move fast; the supply and demand chain can be clouded by uncertainties and searching for reliable information can take time. To compete and win, you need detailed reliable fundamentals data and breaking news. Now you can have that – all in one place for fast access and decisive action.
METALS FUNDAMENTALS DATABASE
FIND DATA FAST AND REACT
COMPREHENSIVE COVERAGE
The Thomson Reuters Metals Fundamentals Database provides essential, up-to-date global statistics for all known primary aluminium, copper, zinc, lead, nickel, platinum and gold operations around the world.
The Thomson Reuters Metals Production Database provides you with an unrivalled range of content, including:
Compiled by our specialist global team through close consultation with leading industry analysts, it’s a unique and unmatched source of data. Get the deep insight into the metals market you need – all from one place.
• D etailed information on each individual mine, refinery or smelter, including historical and future production & capacity estimates, ownership structures and labor negotiations
So whether you’re a trader, broker or an analyst with an interest in the mining sector, the Thomson Reuters Metals Production Database provides all the information you need to stay ahead.
• News on developments at individual facilities
SAVE TIME, SEE FURTHER
• Archived metals stories from specialist Reuters reporters
• S ee information in context. Examine the relationship between market events and production/capacity statistics
NAVIGATE SWIFTLY THROUGH IN-DEPTH CONTENT
• S ave time. The Reuters Metals Production Database provides production statistics and global metals news in one place so there’s no need to search multiple sources • S tay up-to-date. The database shows changes in capacity and production as they happen • B ase your decisions on the very latest news from around the world. Our global team of 220 seasoned commodities journalists delivers breaking news and exclusives on metals and other factors affecting the commodities markets
• H istorical and projected capacity of base metal and gold operations, split by country, region, plant and metal
• Regular updates during the business day • N ew Projects reports detailing recent metals and mine projects or those planned for the next few years
Find what you want quickly through intuitive navigation and see it clearly. Search using a wide range of criteria, including metal or plant type, country, company, shareholding, production and capacity parameters, or display a summary page for any selected plant. • View detailed plant, country or metal summaries • Plot a historical production graph by metal type, region or country • Identify the top ten producers or countries for a given year by metal type • Easily export data to Excel for further analysis
EASY ACCESS All this information is directly accessible from your Thomson Reuters desktop. No need to hunt through different websites or applications. • T here is a link to the Metals Fundamentals Database in the Metals Home page. (Look for the Metals Quick Links.) • O r you can simply search for METALS FUNDAMENTALS DATABASE
NAVIGATE STRAIGHT TO MEANINGFUL INFORMATION A clear, intuitive interface enables you to drill down quickly to explore by commodity or date – and immediately view meaningful graphs and tables, or download to Excel.
Visit thomsonreuters.com For more information, contact your representative or visit us online. © Thomson Reuters 2013. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks and trademarks of Thomson Reuters and its affiliated companies. 9484083 0813.
GOLD Survey 2013 UPDATE 1
Prepared by Thomson Reuters GFMS
©2013 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. “Thomson Reuters” and the Thomson Reuters logo are trademarks of Thomson Reuters and its affiliated companies.
