UOB bank
June 2019
After a decline of 3.3% in 2017, consumption of gold saw a modest pick-up of 1.0% in 2018. Record-high central bank buying coupled with increased bar cum coin investment supported this growth. In contrast, demand for gold jewellery slowed with a mere 1.1% increase in 2018 versus the 11.8% in 2017. Consumption was also supported by the use of gold in technology applications, which reached its highest since 2014.
Global gold production reached 3,347 tonnes in 2018, one of the highest output level in recent years. Australia, Canada, Peru and US were some of the countries with strong production growth and their pace of production is slated to continue over the medium term on the back of robust pipeline projects. China on the other hand, saw production decline for a second consecutive year on the back of strict environmental regulations as well as the closure of smaller mines.
The country's effort to reduce the discharge of cyanide tailings from gold mining operations curtailed production significantly, affecting major producing provinces such as Hunan, Jiangxi and Shandong. The many years of rigorous gold mining also led to falling reserves in several major mines such as those in Gansu and Qinghai. Nonetheless, major Chinese firms have instead been ramping up gold production in their overseas mines in order to satisfy domestic demand.
Gold price on average softened in 2018. However, the market is generally positive that it will strengthen and grow at an annual rate of between 2.0% to 3.2% till 2023. Real gold prices will also likely be supported by a rising supply of bonds, driven by historically high debt levels in key economies. Over the past 20 years, the supply of US bonds has surpassed the supply of gold. As such, the value of gold has improved relative to US treasury bonds. Based on market estimates, gold price should head towards the US$1,300-1,400 per ounce in the next few years.
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