MANAMA: Overall investment demand was the fifth highest on record, despite year-on-year contractions. The retail coin and bar market was the one that really suffered in 2014, slumping by 40% year-on year, driven particularly by the Asian markets, reflecting the action of 2013 and unease over the price outlook. Elsewhere in the investment sector, ETF holdings continued their erosion, albeit at a much slower rate than in the previous year.
Thomson Reuters released “Gold 2015”, the 49th in the series of annual Surveys, looking at the shifts and developments in the global gold markets, their fundamentals and their drivers, over the year and setting the scene for future.
The gold mining sector remains in a precarious condition. While production expanded in 2014, to 3,133 tonnes, this reflected a ramp up of previously commissioned projects. Output is expected to be flat in 2015 as these impact wanes, before starting a palpable decline. All-in-Costs dropped by 25% to $1,314/ounce in 2014 (the average spot price over the year was $1,266.40), although this fall was distorted by the large number of impairments incurred in 2013. If these are stripped out then the fall was much more modest at 3%. Average total cash costs decreased by 3% to $749/ounce, reflecting advantageous foreign exchange rate movements and higher processed grades, while labour costs and lower by-product credits were adverse factors.
Corporate activity in the gold mining industry continued to decline in 2014, with aggregated deals amounting to just $7.3 billion, approximately 9% lower than in 2013 (data from Thomson One Investment Banking). Miners’ priorities focused largely on rationalising existing portfolio and strengthening balance sheets by reducing debt levels while deteriorating sentiment drove the determination to increase efficiency. Hedging, at 103 tonnes, was the highest since 1999, but the GFMS team does not believe that this is a turning point to widespread hedging activity, as it remains confined to a small subset of producers. This year may see net hedging, but it is likely to be of a comparable scale to that of 2014.