Since the beginning of May gold prices have gained around 9%, breaching the US$1,400 per ounce mark on the way to six-year highs. This emerging bull run in the gold investment space follows a 7% rise in gold demand during the first quarter of the year, according to the World Gold Council’s (WGC) Gold Demand Trends Q1 2019 report. Speaking to RGN is the WGC’s head of market intelligence Alistair Hewitt, who highlights the combination of factors that are adding sparkle to the portfolios of gold investors and gold mining companies around the world. The WGC is the world’s global authority on gold, providing key insights to the international gold market, driving innovation and stimulating demand while providing a collective voice to its members.
Jacob Ambrose Willson: Alistair, global demand for gold rose 7% year-on-year in Q1 2019. Explain the key factors driving this recovery in gold demand?
Alistair Hewitt: The standout positive in the markets is central bank gold demand, which at 146 tonnes was nearly 60 tonnes higher than in the first quarter of 2018. This builds on the strength seen in 2018 when we estimate central bank gold purchases were 651 tonnes, the highest since the end of Bretton Woods in 1971.
Inflows into gold-backed exchange-traded funds (ETFs) also had a strong start to 2019. Assets under management (AUM) grew by 40.3 tonnes during Q1, equivalent to US$1.9 billion. Inflows into European gold-backed ETFs have been particularly noteworthy, with assets rising 20 tonnes in Q1. And this is part of a recent trend: since the beginning of 2016, European AUM has grown rapidly and now accounts for 46% of global gold-backed ETF AUM.
JAW: A significant portion of gold demand in Q1 came from central banks increasing their holdings of the metal. To what extent does this support the view that gold is an indispensable monetary asset for institutions in the face of turbulent economic conditions?
AH: That’s correct. Central bank demand in Q1 19 grew 68% year-on-year to 145.5 tonnes, the highest level of Q1 net purchases since 2013. This could be viewed as a strong statement of intent towards gold, especially given this follows the highest level of annual purchases for 50 years.
In the wake of the global financial crisis, central banks rediscovered the importance of holding gold as part of a well-diversified reserve portfolio. Given the slow recovery of the global economy since that event, and new uncertainty being introduced more recently in the shape of global trade tensions, central banks accumulated gold bolstered their ability to weather these risks.
Not only have we seen significant levels of buying each year since 2010 – especially from emerging market banks – but we have also seen a lack of selling by their developed market counterparts. Given these risks will remain for the foreseeable future, our belief is that this strong central bank buying will continue.
JAW: After global gold supply ticked up by just 1% last year, does the WGC expect production to plateau in 2019, given the slowing rate of new gold deposit discoveries? How important will gold recycling be to future supply?
AH: Global gold mine production has hit record levels in the last couple of years, and Q1 19 was the highest level of first quarter output on record. While discoveries have slowed to a trickle in recent years, there is still optimism around the production pipeline. Intermediate and junior companies – whose projects greatly outnumber those of the major miners – have been successful in accessing new capital, helping to drive project development. And we’ve seen the continued ramp-up of significant projects in Canada and Russia, as well as exploration spending reach multi-year highs in Australia in 2018.
Recycled gold supply accounts for around a quarter of annual total gold supply and will continue to support mine production in feeding the gold market.
JAW: Which underexplored regions, outside of established gold centres in China, Russia, Australia and North America, offer the biggest opportunities for discovery?
AH: Last year we saw notable production growth in Canada, Russia and Australia. Canadian and Russian miners are benefiting from recent ramping up on new projects. In the former, projects such as Brucejack and Rainy River boosted output, while in the latter the ramp-up of Natalka made a sizeable contribution of national production. And Australia is currently going through something of an exploration renaissance. As we noted in our Full Year 2018 Gold Demand Trends report, exploration spending in Australia reached multi-year highs in 2018.
West Africa is an important gold producing region that has seen rapid gold production growth over the past decade as well, with mine supply increasing from about 225 tonnes in 2010 to around 410 tonnes in 2018, an annual growth rate of about 8%. According to Metals Focus, our primary supply and demand data supplier, Ghana, Mali and Burkina Faso all featured in the top 20 gold producing countries in 2018.
It’s very possible that we will continue to see further growth from West Africa too. And in Africa more broadly, we have also recent seen the reassessment of artisanal and small-scale mining (ASM) which suggests this is larger than previously thought and growing swiftly.
JAW: Is it fair to call West Africa the new capital of gold production in Africa, after Ghana overtook South Africa as the continent’s largest producer?
AH: I think West Africa is likely to be the engine of growth for African gold production, with a number of projects ramping up recently. And while South Africa is no longer the leading producer in the continent, it will play a significant role in gold production for several years.
Geographically-speaking, gold mine production is more diversified than ever. Not much has changed since 2010 in terms of gold production’s geographic split. And this is a key strength of the gold market. Given the global spread of gold mining, supply to the market is less susceptible to regional shocks and therefore far more stable than in some other metals.
JAW: The WGC recently welcomed West African stalwarts Teranga Gold and Endeavour Mining to its board of members. How will these companies contribute to the work of the WGC?
AH: Both Teranga Gold and Endeavour Mining play an important role in the production and exploration of gold across West Africa and bring with them a wealth of experience that will be of significant value, and look forward to working with the Council and its members to improve the understanding of the gold industry, reinforce trust and set global standards.
JAW: To what extent does the addition of these West African mining companies to the WGC’s membership reflect the rising importance of the region to the global gold industry
AH: West Africa is an important gold producing region, with gold output stretching back before recorded history in countries like Ghana and Mali to name but two.
It is a region that has seen rapid gold production growth over the past decade as well, with mine supply increasing from about 225 tonnes in 2010 to around 410 tonnes in 2018, an annual growth rate of about 8%. Ghana surpassed South Africa as the continent’s largest gold producer in 2018, a position I suspect it will keep hold of in the near term if not for longer.
JAW: Finally, can you provide your thoughts on the role of gold in today’s digitally innovative world and within a shifting global economy?
AH: Gold will remain an important part of digital innovation. It is a shrewd investment and is deeply ebbed in cultures and customs around the world.
But what is exciting is how technology can create new ways for people to access gold. There are several innovative fintech companies exploring how blockchain technology can make it easier to people trade gold, as well as increasing the transparency of the global gold supply chain.