The supply of gold comes from three sources:
- new production from mining
- recycled scrap, and
- releases from existing stocks of bullion by central banks.
A key difference between gold and other commodities is that it is not consumed. This means that most above-ground stocks of gold can be brought back to market. As a result, the amount of gold mined in any year represents only a small proportion of the total gold potentially available for sale.
The chart below shows the top eight gold producing countries in 2010:
Although mining is typically the most important source of supply, the outlook for production from all gold mining companies over the next five to ten years is one of gradual decline. The primary drivers for this are:
-
a trend of lower grade production by many producers
- increasing delays and impediments in bringing projects, especially large-scale projects, to the production stage
- inflationary pressures on capital costs, although these have eased
- global financing conditions that constrain project financing, and
- a lack of global exploration success in recent years.
A decrease in global industry production has the potential to increase the sustainable long-term gold price, assuming demand for gold remains at the current level.
The total supply of gold coming onto the market in 2010 was 4,108 tonnes, an increase of 2%.
2010 gold supply (tonnes)
Change in supply 2009 to 2010 (%)
The increase in the mine supply was 9%. Within this, production increased by 3%, with the remainder accounted for by a sharp decline in net producer de-hedging, which increased supply by 136 tonnes.
Despite the high gold price, supplies of recycled gold were little changed on 2009’s very high level. This reflected consumers’ belief that gold prices were likely to rise further.
In total, the official sector holds 18% of all above-ground stocks of gold. Its sales have been an important provider of liquidity and incremental supply in recent years. However, the level of supply has reduced as advanced economies sold less in the wake of the financial crisis and emerging economies bought gold to restore the balance between their foreign currency and gold reserves. In 2010 the official sector became a modest net buyer overall, with Russia, Thailand and Venezuela all adding to their gold reserves.