The supply of gold in the first quarter took a hit in the first quarter of 2017 with Australian mines reporting marked declines in production. This also contributed to the gold price Australia rising in response to demand and fears. According to analysts, Australia’s total gold output dropped from its previous 77.5 tons to 71.5 tons in the first quarter. Many blamed the weather. This year Western Australia experienced some turbulent weather, in particular the heavy rains that fell across Western Australia and Cyclone Debbie that hit Queensland in late March. However, Australia isn’t the only gold producing country that experienced a slump in its output.
China which also happens to be the biggest producer of gold also experienced sharp declines in its output in the first quarter. The first quarter production of gold dropped by 9.3%. Compared to the 111.563 tons reported in the first quarter of 2016, China only managed to produce 101.97 tons for the first quarter of this year. In China’s case, the weather had nothing to do with the decline in production. China has been phasing out old production facilities. Shutting down old mines will affect Chinese gold productions in the long term.
Mines in Australia on the other had to resort to more robust mining techniques to go deeper into the ground as most of the gold that was on the surface and easier to reach has already been mined. Mining companies are drilling to depths of up to 3km below the surface. This means it’s getting harder and more expensive to produce gold.
With bad weather in the mining areas, the gold ore that has to be hauled from deep underground gets wet, slippery and harder to handle.
Whilst it is easy to see the effects of bad weather, the decline in gold production is something that a lot of people have been anticipating. Australia’s gold slump fits into the broad pattern of declining gold availability in the world. In 2016, analysts were already talking about how the world has reached its peak gold production, meaning that we can expect gold to keep shrinking until mine become less viable to operate. This has been tracked since the 1970s. Since then, we have seen old sectors being depleted, but not much being done in terms of new explorations. It’s not that there is no money for new exploration; the problem is that it may take a span of 20 years between the time that gold is discovered and actual production.
There have been 263 major discoveries made over the past 27 years and they all happened in 1990s. This gold boom lasted until the turn of the century. 16 new discoveries were made between 2000 and 2002. They produced 108.3 ounces of gold. This was far below the average amount of gold found in the 90s. By 2010, only 18.6 million ounces of newly discovered gold were mined.
Most investors focus on the economic news and Federal Reserve Bank announcements, and price trends. Somehow, we forget the fundamental dynamics of supply and demand. If we are nearing the peak of gold production, then that means the scales tip more towards the demand outstripping the supply. This means that there will be added pressure on the gold price Australia to rise.
