LAWRIE WILLIAMS: China gold output slipping – Australia and Russia catching up ?

Are China’s days as the world’s top gold producer threatened?  And if so by which countries?

According to the China Gold Association, the nation’s gold output in Q1 fell another 5.5% to just short of 93 tonnes.  If that percentage decline is continued over the full year, Chinese gold output this year would fall to around 380 tonnes and it would only take another two to three years of declines at this kind of magnitude for the world's current No. 1 gold producer to be overhauled by Australia, and/or perhaps Russia, both of which are going through stages of annual gold output growth. (For tabulations of global gold output by country, company and mine click on World Top 20 Gold 2018 – Countries, Companies and Mines)

Last year, for example, Australian gold production was estimated by consultancy Metals Focus at 315 tonnes, up around 7.6% on the previous year, although local consultancy, Surbiton Associates, which specialises in Australian gold, puts it even a fraction higher at 317 tonnes.  Russian output, according to Metals Focus, was up around 6% year on year at 297 tonnes, although that country’s Finance Ministry reports it as 17 tonnes higher at 314 tonnes.  Both of these nations, if output grows at a similar rate to last year, and if China’s gold output continues to fall at 5-6% annually (it fell 5.9% last year according to Metals Focus), would edge out China as the world’s No.1 gold producer by 2021 or 2022.

What impact would this have on the global gold market?  China would almost certainly need to import more gold to meet what seems to be still-growing domestic demand for the precious metal. (The China Gold Association reports Q1 growth in Chinese demand - as we have pointed this out here in a recent article on Q1 Shanghai Gold Exchange gold withdrawals data).  Global new mined gold output would probably still remain just about flat (Peak Gold or thereabouts) and with central bank buying continuing at a relatively high level (led by Russia and China) we could be entering a period of a slight supply squeeze on gold.  Scrap supply is unlikely to increase significantly unless there is a big gold price increase, but there could be further liquidations out of gold holding ETFs to meet any supply shortage.  But overall the likely output moves would be positive for the gold price and meet with our predictions for a slow and steady increase over the months and years ahead.

Of course this doesn’t allow for external geopolitical stimuli; political or financial crises could lead to a sharp short to medium term rise in the gold price.  It is perhaps notable that one of the analysts we agree with most – Martin Murenbeeld – allows a $10 to $15 contingency for such an occurrence to his year-end 2019 and 2020 gold price forecasts.  This could prove to be conservative in extreme cases but is probably something that should be followed as a possible price scenario by the gold investor.

26 Apr 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

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