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Gold, Silver Supplies to Rise While Prices Decline in 2014

May 7, 2014 9:58 AM   By Metals Focus
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Press Release: Global gold and silver mine production is set to achieve record highs in 2014; two of the key findings from Metals Focus’ inaugural Gold & Silver Mining Focus report. The project was produced under the auspices of the Denver Gold Group, with the generous support of Valcambi. Our aim at Metals Focus is to develop the Gold & Silver Mining Focus into an industry reference handbook, providing the market with valuable insights into the global gold and silver mining sectors.

A market overview and outlook and an analysis of recent trends in mine supply, production cost and reserves are all included in the report. It also features an outlook of future mine supply (exploration projects through to operating mines), risks to producers’ operating environment and an analysis of key producer market ratios and mergers and acquisition activity.

A summary follows with some of the key report findings.

MINE SUPPLY & THE DEVELOPMENT PIPELINE

Global gold and silver mine supply continued to rise in 2013, with both metals achieving new highs of 96.7 million ounces (up 4 percent year on year) and 818.1  million ounces (up 5 percent year on year), respectively. Both metals continued to benefit from the ramp-up and start-up of projects conceived earlier in the commodities cycle. For gold, significant growth once again emerged in China (the world’s largest producer), while notable gains also occurred in the Dominican Republic, Canada and Russia. Silver production was boosted by a broad number of additions in several of the world’s largest silver-producing countries, notably Peru, Mexico and China.

Looking forward, gold mine supply is expected to again rise this year. However, post-2014, the outlook appears more uncertain. As such, from 2015 gold production could enter a period of secular decline. In contrast, the forecast for silver supply is more positive, with further gains expected until 2016 at least, albeit at a slower pace than in recent years.

MINE PRODUCTION COSTS

The recent trend of production cost inflation slowed dramatically in 2013, and for the primary silver sector, it even reversed slightly. This improvement was in part driven by miners’ necessity to cut overhead (following the decline in metal prices) and was further aided by a weakening of many producer currencies, lower royalty payments and an increase in processed ore grades.

Overall, total gold cash costs rose by just 2 percent year on year to $750 per ounce, while on the all-in sustaining metric, costs fell by 3 percent to $1,018 per ounce.  The cost of producing an ounce of silver fell on all metrics. Total cash costs dropped by 2 percent to $9.17 per ounce, while on an all-in sustaining basis, they fell by 8 percent to $15.14 per ounce.

We expect gold mine cost inflation to remain contained this year, as producers continue to focus on streamlining their assets. Although similar measures will also be ongoing at primary silver mines, costs may well come under pressure from the new Mexican royalty (Mexico accounts for over a third of global primary silver mine supply) and further reductions in the value of offsetting gold by-product credits.

GOLD & SILVER PRICES

Following a poor 2013, this year’s start suggests that attitudes toward gold and silver, among mainstream investors, have been shifting away from the one-sided selling seen in 2013 to a more balanced perspective. Looking ahead, we see 2014 as a year broadly of consolidation for gold and silver. We believe the high for the year is already behind us, while on the downside, further price weakness from current levels is possible. For gold, we would therefore not rule out a brief drop to around $1,100 per ounce. It is a broadly similar picture for silver, in part governed by gold’s moves and so we expect the full-year average to fall just short of $20 per ounce. 

MARKET FUNDAMENTALS

GOLD: Last year, total supply fell by around 7 percent to 136 million ounces. With continued growth in mine production, this was entirely due to the sharp decline in recycling on the back of weaker prices and reduced distress selling. Gold demand is estimated to have grown by 17 percent to 157.9 million ounces in 2013, with the vast majority of these gains accounted for by jewelry and physical investment. Overall, therefore, the gold market recorded its first structural deficit of substance in many years. This year, another drop in recycling should see total supply ease further back.

On the demand side, although physical demand is likely to moderate in many key consuming markets this year, we expect overall volume to remain at elevated levels. As such, the gold market is projected to record another structural deficit in 2014, providing some support for prices for the rest of the year.

SILVER: Global silver supply is estimated to have risen by 3 percent in 2013 to 1,040 million ounces. The increase was driven by a 5 percent lift in mine production, which offset weaker levels of recycling. Silver demand achieved an impressive 10 percent rise last year to 1,033 million ounces, but fell just short of tipping the market into deficit. Demand was boosted by a near two-thirds surge in physical investment and a 3 percent gain in industrial fabrication. For 2014, last year’s improvements in silver’s supply-demand balance could be reversed slightly, as global supply continues to rise while total demand slips back.

The most significant change, on either side of the market, is expected in physical investment. This is forecast to drop by around 11 percent, which owes much to the impact of the increasingly range-bound price outlook for the remainder of 2014.

ABOUT METALS FOCUS
Metals Focus is one of the world’s leading precious metals consultancies. We specialize in research into the global gold, silver, platinum and palladium markets, producing regular reports, forecasts and bespoke consultancy. Based in London, the Metals Focus research team also includes analysts in Hong Kong, Mumbai, Johannesburg, Taiwan and Istanbul. With a large range of contacts across the world, the quality of our work is underpinned by a combination of top-quality desk-based research, coupled with an extensive travel program to generate bottom up research for our reports and consultancy services.

 

Rapaport News is not responsible for, and does not endorse, the content of any third-party press release. This is not a Rapaport Press Release. It has been provided as additional information for our clients.
 

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