4 Feb 2012

Resource & Energy Outlook- A Government Publication

Resources and Energy Quart Jan 2012From Page 46 in Document Below:


  • In 2012, gold prices are forecast to increase by 17 per cent relative to 2011, to US$1850 a tonne, underpinned by investment demand.
  • World gold mine production is forecast to increase in 2012 by 3 per cent compared with 2011, supported by increased production in Latin America and Africa.
  • In 2011–12, the value of Australia's gold exports are forecast to increase by 45 per cent to $18.9 billion, driven by an increase in both export volumes and gold prices.

Gold prices have been volatile in second half 2011

In the September quarter 2011, the gold price averaged US$1701 an ounce, an increase of over 13 per cent relative to the June quarter 2011, and 39 per cent higher than the September quarter 2010. While the price of gold increased during the September quarter, it also displayed significant volatility, with the London AM fix prices registering as high as US$1897 an ounce and as low as US$1493 an ounce.

The increase in average gold prices and volatility throughout 2011 (see Figure 2 below) largely reflects the ongoing developments in global financial markets associated with sovereign debts in a number of European economies. This, in turn, has increased investment demand for gold for institutional investors and central banks because of its ‘safe haven’ properties.

In 2011, gold prices have also been supported by an increase in fabricated gold demand, such as jewellery and dental applications. Much of this additional demand has come from China and India, supported by rising incomes and consumers seeking a safe store of value for their wealth. Against a backdrop of strong demand, world gold supply growth has been limited. World mine production is estimated to have only increased by 3 per cent in 2011, relative to 2010, while central banks have become net buyers of gold, whereas for most of the last decade they were net sellers.
For 2011 as a whole, the gold price is estimated to have averaged US$1577 an ounce, an increase of 29 per cent compared to the average price in 2010.

Gold prices to remain high in 2012

The world gold price in 2012 is forecast to average $US1850 an ounce, 17 per cent higher than in 2011. Starting from a much higher base than in 2011, the price of gold is expected to be supported by a number of factors including low interest rates in the US and Europe; changes to the balance of some central bank portfolios; and continued investment and fabrication demand from consumers in developing economies.
The duration and extent of the instability associated with global credit markets pose risks for the gold price over the outlook period. Extended periods of financial market instability could increase investment demand for gold and, in turn, could place further upward pressure on the gold price.
In the US, the Federal Reserve's commitment to keep interest rates low into 2013 is expected to support the price of gold throughout 2012. It is also expected that the low rate of returns on US treasuries relative to the expected returns from gold over the period will result in increased investment demand for gold.

The erosion in confidence in fiat currencies may also provide support for the gold price.
Traditionally, central banks in many less developed countries have held a large proportion of their reserves in US dollars and/or euros. The poor performance of these reserve currencies against local currencies may lead central banks to rebalance their portfolios towards other assets, such as gold.

Emerging economies to support official Sector purchases

In 2011, the official sector (central banks) is estimated to have made net purchases of gold of around 400 tonnes. This is a five-fold increase on 2010 levels and compares to net sales of 34 tonnes in 2009.
A major factor behind the transition of the official sector from a net seller to net purchaser of
gold has been has been the escalating concern over the dependability of traditional reserve currencies. One of the major assets commonly held by central banks has been major currencies such as the US dollar, the euro and the Yen. The poor performance of many of these currencies against domestic currencies has led central banks to reconsider using gold as a strategic asset.
Evidence of this transition is given by the net purchases made by many emerging economies that have traditionally held a low percentage of their overall foreign reserves in the form of gold. For instance, in the September quarter 2011, the Russian Federation added 15 tonnes to its gold holdings; Thailand purchased 25 tonnes and Bolivia 14 tonnes.
In 2012, total net purchases by the official sector are expected to remain strong, increasing by 13 per cent to 450 tonnes. Evidence of the intent of some countries to continue increasing their gold holdings can be seen by Venezuela’s nationalisation of its gold industry and Kazakhstan’s commitment to purchase the nations entire bullion output until at least 2014/15. However, purchases depend on the individual policies of gold-holding countries, which can change depending on perceptions of the global economic outlook.

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