CPM Group: Global supply to rise 4.4% in 2007; price outlook uncertain

By Staff -- Purchasing, 5/3/2007

World supply of gold is projected to increase 4.4% to 110.3 million oz in 2007, after declining by 2.9% to 105.7 million oz in 2006 from 108.9 million oz in 2005, according to the CPM Group's Gold Yearbook 2007. The 2006 decline—which helped trigger a 36% increase in prices—reflected lower mine production as well as a reduction in the quantity of gold recovered from scrap.

The price outlook for 2007 is widely debated, however. Consensus forecast is flat with the 2006 average of $604 while precious metals consultant GFMS says in its Gold Survey 2007 that worries over high oil prices and inflation might trigger speculative investment and boost the annual average price past the previous record of $615 set in 1980.

Global mine output declined 2.4% to 61.4 million oz in 2006 from 62.9 million oz in 2005, and a peak output of 68.8 million oz in 1999. Recovery of gold from scrap dropped 6.1% to 26.3 million oz in 2006 from 28 million oz in 2005. The net flow of gold from China, North Korea, Vietnam, Cuba, Russia and the other countries of the former Soviet Union is estimated to have been roughly unchanged at 18 million oz last year, but is forecast to increase this year to 19 million oz, CPM says.

In 2007, mine production is projected to increase 4% to 63.8 million oz, with additional output coming from new mines and expansion of old mines, according to CPM. Production from scrap is expected to rebound 4.6% to 27.5 million oz in 2007, mainly reflecting strong flows of old gold jewelry into the Middle East and Europe.

The report noted that more money was being spent on mine exploration and development than ever before in history. Exploration expenditure globally increased to an estimated $7 billion in 2006 from $5 billion in 2005. As a result, new deposits are being discovered and new mines developed. Roughly 50 mines with a combined annual capacity of 14.5 million oz are being developed in Indonesia, South Africa, Australia and Canada with scheduled startup dates between 2007 and 2011.