2018 will be a slow but steady improvement for gold prices and gold demand, according to analysts at Thomson Reuters who have released their latest annual gold survey.
The 85-page document uses data provided by Tanaka Precious Metals, Valcambi Suisse, PAMP Suisse, Perth Mint, Italpreziosi, YLG Bullion, OLME to give an approximation of the performance of gold in 2017 and combines that with older data to help predict 2018.
2017 – Supply:
To know where we’re heading we need to know where we’ve been. 2017 was considered an odd year for gold, with prices spiking to highs over £1,030 per ounce, but equally hitting lows of £926.
A combination of environmental concerns and a crackdown on illegal mining caused global mine production to drop in 2017. While countries like China and Indonesia slowed down, Russia was the largest growth of supply last year, while the US and Canada both upped their production levels.
Supply was also hindered by higher Total Cash Costs (TCCs). A mix of higher fuel costs, lower grades of gold, and fluctuations in producer currencies bumped costs up year-on-year in 2017 from $649 per ounce to $672 per ounce.
2017 – Demand:
Total physical demand rose by 10% in 2017 – the first increase since 2013. The was largely because of a return to growth in jewellery fabrication, but continual growth in industrial demand is helping too; demand rose by 4% last year (the first rise since 2010) due to the global economy’s improved state. Electronics stood out at the star sector within that.
Demand for gold bars fell by six tonnes year-on-year, which is negligible, but demand was notably low in North America.
Gold bullion coins were the big losers in 2017, with the lowest demand levels (248 tonnes) for a decade. Lost popularity in coins can be tied to the fact that cryptocurrencies did well end of 2017 and stock markets did well start of 2018, as can the fact that gold ETFs were up slightly last year too – both of which were boosted by unstable currencies.
Mints primarily producing bullion coins, such as the Royal Mint, have been expanding their reach into new markets – particularly East Asia – and are producing new products specifically with those new customers in mind but also to make coins more attractive and redress this popularity imbalance. Interestingly, bullion demand (bars and coins) was up in the UK and China despite a drop in the likes of Germany, India, and the US.
One big positive for gold investment was the growth of the app market and more mobile transactions. The last two years have improved investor awareness of the gold bullion market, especially with the younger generations, helping improve market penetration.
2018 – 6 Month Forecast:
The GFMS report points to an average of $1,360 per ounce (£1,016.31) for gold this year, with peak prices near $1,500 per ounce (£1120.93) later in the year. The expectation is that geopolitics will come into play and gold will become a safe haven or a risk hedge.
PLEASE NOTE: The Pound Sterling figures cited above are DIRECT currency equivalents. Gold CAN go up in Dollars and Pounds simultaneously but usually it is a weaker Dollar causing their rise, which makes the Pound stronger and thus Sterling prices of gold lower. They will be close to a direct equivalent, but not exact.
The logic leading us to predicted gold price rises is that a combination of uncertainty around President Trump, the on-off North Korea meeting, tensions in the Middle East with Israel, Iran, Syria, Turkey… and then of course back in the UK we have Brexit negotiations. All of them in their own right are gold price and demand catalysts, so combined we could see prices shoot up.
2018 – Mining:
Gold mining is expected to grow this year to a new record high of 3,265 tonnes, though this figure obviously relies on the honesty of mining companies to give true statistics about performance.
Russia and Canada’s improved mining levels are expected to continue, as well as resurgence in Australia, China, and Indonesia. Other projects are considered promising in Mauritania, Argentina, the Democratic Republic of Congo, and Peru, but losses in gold ore levels are expected in the United States, Tanzania and South Africa.
Thomson Reuters will release three more key surveys later this year:
- GFMS GOLD SURVEY 2018: H1 UPDATE AND OUTLOOK - 26th July 2018
- GFMS BASE METALS REVIEW AND OUTLOOK - 8th October 2018
- GFMS GOLD SURVEY 2018: Q3 UPDATE AND OUTLOOK - 25th October 2018
The GFMS 2018 Gold Survey is sponsored by Tanaka Precious Metals and Valcambi Suisse.