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LAWRIE WILLIAMS: Whither Peak Gold as Turkey expanding output?

Should two items of news reported this week come about, they could both affect global gold production and demand into the future, and even denote a more definitive trend in gold supply/demand fundamentals.  The first involves the announced intention by Turkey to enhance the nation’s annual gold output, while the second is the first really positive news on central bank gold buying policy and comes from Poland, more on which we will cover in a separate article.

We have been hearing much over the past few years on ‘peak gold’ being the point at which global gold production starts to turn down after many years of continuing growth.  True 2020 may well see a decline in global gold output compared with previous years, but that will almost certainly be, at least in part. a temporary phenomenon due to Covid-19 pandemic control measures leading to temporary mine closures – note the word temporary!  Logically the cutbacks in global gold exploration activity over the past few years have meant that virtually no new big low grade gold projects, which have been the key factors in global gold production growth, are in the pipeline.  Aging properties, and reducing grades at older mines would suggest that, at the very least, global gold production will plateau and start to wither.

Undoubtedly this is true, but it is taking longer to occur than most analysts had been projecting.  Indeed global gold output has generally been rising, albeit by pretty small percentages, over the past several years according to some major gold-following consultancies.  Actual peak gold may be proving somewhat elusive.

Falls in gold output from major producing nations are indeed occurring, but these are being at least partially countered by increases from nations producing gold from a plethora of smaller operations which, in combination are meaning that global gold output is remaining at around peak levels and even rising marginally in most years.  True the latest Gold Demand Trends analysis from the World Gold Council (WGC) suggests that at 3,400 tonnes 2020 global new mined gold production was 4% lower than in 2019.  This was the second consecutive annual decline in production – and the first back-to-back annual drop since 1975 – although the reasons were said by the WGC to be very different.

The WGC reported that Covid-19 pandemic interruptions were the main reason for lower mine production in 2020, and the impact varied both geographically and over time. Regionally, Asian production was hit hardest in Q1 (China being the world’s largest gold miner by volume of gold produced), as was output from the Commonwealth of Independent States (CIS) region (in combination the second largest new mined gold producer), although the latter was likely influenced by normal weather-related seasonality.  Africa and the Americas saw coronavirus interruptions hit production the hardest in Q2, while Oceania saw production declining over the year, but this was probably only partly related to Covid-19.

Although there were thus recorded falls there were also rises in output and we have already reported, for example, on greater gold output from Australia almost certainly putting that country back into second position among the world’s individual gold producing nations.  Australia mines its gold primarily from a large number of smaller producers and is set for another rise this year with some significant new producers coming on stream.

Meanwhile Turkey has also said it will endeavour to increase new mined gold production quite significantly  – from a current level of around 42 tonnes annually to a yearly output of 100 tonnes over the next five years as some new gold mining operations are  brought on stream. 

The above ties in well with reports that the Turkish government is trying to reduce gold imports – the country was probably the largest global importer of gold in 2020 as recorded in WGC data and according to specialist precious metals consultancy, Metals Focus, Turkey’s gold bullion imports reached an all-time high of 503 tonnes, or $26.6bn, last year, contributing to over half of the country’s $49.9 billion current account deficit.  Some of this gold may well be exported again – some say to Iran – and this does not seem to be referred to in the government statistics.  While any rise in Turkey’s own gold output should help curb imports, on 2020 figures this would only have a marginal impact.

18 Mar 2021 | Categories: Gold

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